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Rising High: Exclusive talk with cannabis market research firm BDSA
The Fly

Rising High: Exclusive talk with cannabis market research firm BDSA

BDSA Insights Director talks cannabis consumption, industry challenges, opportunities, and more

In this edition of "Rising High," The Fly conducted an exclusive interview with Rick Maturo, Director of Insights and Analytics at BDSA, a Colorado-based cannabis market research and data analytics firm. Here are some highlights:

LEGALIZATION SUPPORT: BDSA recently released its Fall 2022 Consumer Insights Report, which found that support for full legalization showed continued growth among U.S. adults, up 5% from Spring 2022. Maturo said there were several factors leading to that increased support starting with general awareness. “We’re seeing states continue to pass either adult-use or medical use laws that are providing new access to consumers that otherwise may not have necessarily been interested in cannabis,” he said. “I would also say that cannabis is continually being destigmatized.”

The Director said people are realizing that some of the past perceptions on the harms of cannabis may not have been rooted in science. “Research is starting to catch up and people are realizing the risk factors may not be what they had previously thought,” he said. “And certainly, there is a cohort of individuals who are finding relief for different types of conditions.” People who may not want to consume or participate in cannabis may also support legalization if they’re economic pragmatists, Maturo added.

“States that have legalized cannabis for adult-use are seeing a fair amount of tax dollars flowing in,” he said. “A lot of these states are taking in hundreds of millions of dollars year-over-year, which ultimately finds its way back into public works projects, schools and substance abuse prevention programs. People are starting to realize there might be an upside to regulation.”

CANNABIS CONSUMPTION: BDSA’s newest report also found that three out of four adults have bought into consuming cannabis in legal states. Maturo said this trend is due to awareness and destigmitization, but also the experience that cannabis can provide to consumers. “People recognize there might be some benefits for them, whether its relaxation-oriented, aiding in better sleep, or helping to relieve pain,” he said.  “People are simply willing to give it a try if it’s available to them and is not going to put them in any legal risk to do so.”

Maturo expects the growth of past six-month consumers to continue in most legal states, adding BDSA data has shown that the time length it takes to hit the 50% consumption threshold in adult-use states is decreasing over time. “Colorado opened up its doors for adults to legally purchase cannabis without any sort of medical need in 2014, but took seven years to get to about 50% of their population claiming that they had consumed a cannabis product in the past six months,” the Director said. “When we look at a state like Illinois, which came online for adult-use in January 2020, it only took about a year and a half to get to 50% claimed consumption. Then you have a state like Arizona, which opened up stores back in early 2021. It only took about six months from the time that those stores opened to get to that 50% threshold.” He stated in newer markets like New Jersey and New York, even prior to adult-use legalization over 40% of adults said they had consumed cannabis in the past six months. “It’ll be really interesting to see what that growth will look like in New York and in New Jersey,” Maturo said. “My expectation is that we will see that percentage of past six-month consumers increase.”

CONTINUED CONSUMPTION: The report also stated that nearly 90% of cannabis consumers in legal states report they expect to continue consuming in the next six months. “I was very surprised, not that we would see that many continued category consumers, but what we’re seeing for cannabis in terms of that likelihood to continue use is certainly higher than what you see for even some consumer goods categories,” the Director said. “It’s definitely good news for folks in the industry.” He said once people begin to consume and have an enjoyable experience, if it keeps being rewarding for them and is not impacting their daily life or relationships, they really have no reason to discontinue. “Especially if you think about the cost per use occasion for most cannabis categories,” Maturo said. “They’re pretty low when you compare it to other forms of entertainment or even other consumer goods that someone might use for experience enhancement and relaxation, like certain forms of alcohol or tobacco products.”

SPENDING DECLINE: BDSA also found that average consumer spending on cannabis per shopping trip declined by $5 . However, the Insights Director said the decrease is not due to less cannabis consumption, but the significant decline in the price of most cannabis products. “If we look at some of those more mature markets like a Colorado or a California, we did see that price compression year-over-year in 2022 versus 2021,” he said. “That was in that 5%-10% range in terms of the price dipping on the average cannabis product. What you’re seeing when we look at consumer spending going down is a reflection that the products that people are continuing to purchase with regularity have just gotten cheaper on the shelf. “

BDSA data also show that the average basket size declined in most markets, Maturo said. “In addition to some of the declining cost of those items, we are also seeing a lot more discounting today than what we had seen in some of the earlier years,” he said. “Obviously, there’s a ton of competition, and with prices falling, consumers are very scrupulous about trying to find the lowest price. Retailers are taking note and coming up with lots of innovative ways of promoting products.”

INHALABLES INCREASE: BDSA also stated that inhalable form factors (flower, pre-rolls and concentrates) continue to lead in both preference and usage among consumers, while topicals saw double digit declines compared to spring 2022. “It comes down to the use case that we see and also some of the differences between the benefits,” the Director said. “One of the things that we know about edibles and transdermal topicals is that they have longer onset times.”

An onset time for an edible product can take anywhere from ten minutes to an hour and half, he said, adding that every user’s digestion will be a little different. "When we talk about inhalables that effect is going to be almost immediate for most people, anywhere from 15 seconds to a minute,” Maturo said. “It’s going through your lungs and getting up to your brain much faster than having to go through your stomach lining and into the bloodstream. The speed to onset plays in when people are wanting to use those inhalable products.” He also noted that many cannabis consumers tend to have their first experience with products that fall into the broader inhalable category. “Once you develop a preference and familiarity with inhalable cannabis and think that is how it is supposed to be used, you are going to be more ingrained in that inhalable category,” the Director said. “So when they go to a dispensary for the first time and they’re met with all these different options, they just go with what they know.”

He stated there are users embracing some of the newer product categories available, with BDSA seeing tremendous growth in gummies as well as strong growth in infused pre-rolls, which are in the inhalables space. “An infused pre-roll is essentially ground flower that is infused with an extracted concentrate, then put into a pre-roll,” Maturo said. “What that is really doing for the end user is making a more potent product.”

BDSA saw the product take hold in a couple of mature cannabis markets, the Director said, noting that only about 25% of pre-roll sales in California were coming from that infused pre-roll category in 2020, but infused pre-roll now represents over 50% of total pre-roll sales in the state.

ECONOMIC CONCERNS: When asked about how rising concerns around inflation and recession will impact the space, Maturo said cannabis has proved to be pretty indelible when looking at more dire economic times like the pandemic. “We’re probably not going to see that much of a fallout in terms of consumer participation,” he said. “We may see some change in how consumers are shopping for cannabis, and they will probably become a little more price conscious.” Consumers may look to downgrading the products they purchase or buying in bulk as viable options, the Director said.

LEGALIZATION: Following the mid-term elections, Republicans won control of the House of Representatives while Democrats retained control of the Senate. Maturo said he does not expect the next couple of years to bring significant change regarding federal cannabis reform. “It seems like every time we move an inch, we get sent back a little bit.” he said.  “I wouldn’t be surprised if we start to see some of those federal legislators using things like the SAFE Banking Act and other cannabis initiatives to campaign. We know there is a strong appetite to see some of that legalization action happen, even in states where we don’t have legal cannabis.” The Director said he expects progress on cannabis reform following the next presidential election and major changes to still be a couple of years out.

“If we’re going to see some sort of change, my sense is that it would probably come in a piecemeal form, such as the SAFE Banking Act,” he said. “I’m not necessarily predicting that we are going to see descheduling or even federal legalization. It’s just like a lot of things with our politicians. The timing has to be right, and everyone is going to have to see some benefit for their side of the aisle.”

SAFE BANKING: In April, Oregon’s U.S. Senator Jeff Merkley along with Montana’s U.S. Senator Steve Daines introduced the bipartisan Secure and Fair Enforcement Banking Act of 2023, which looks to ensure that legal cannabis businesses have access to critical banking and financial services. “It’s definitely something the industry has wanted for a long time,” Maturo said. “Having access to capital, to more established banking systems and institutionalized lines of credit versus private investors is going to be a great benefit to the industry.”

He said cannabis firms have often been strapped for cash and having access to more traditional ways of leveraging non-cash assets would be valuable. “It would allow them to be a little more aggressive in terms of how they’re looking to scale their business,” the Director said.  “A lot of folks have to be very strategic about where they deploy those cash assets and are even leaning on the investor capital, which isn’t as fruitful as it has been in other years.” He said he expects the Act to fair similarly in Congress as it has in the past. “It may not get across the finish line this time around,” Maturo said, “But with each pass it seems like it is gaining momentum. We foresee something like that happening probably in the next two to three years, if not sooner.”

CHALLENGES: When asked about the largest hurdles facing the cannabis space, the Director pointed to the limited access to traditional financial systems as a burden. “Some folks would say it’s the number one challenge facing the cannabis industry,” he said. “But depending on who you talk to the federal restriction on interstate commerce is also a barrier, especially if we’re talking about those very large companies.” Maturo said companies looking to enter a state must either partner with a firm that already has existing licenses and facilities, or establish their own operations, which is very cost prohibitive. "If interstate commerce prohibition goes away, companies could set up in a state where they can grow cannabis a lot more plentifully, cheaply and ship some of that product to those states that are primarily indoor grow states,” he said. “That would see them have some savings for the product that they are going to put on the shelves and I would have to believe that some of the cost savings would translate down to consumers.”

Representation within the industry is also a significant challenge as the space continues to grow, the Director said. “There’s been great strides at the state level with people really trying to prioritize things like social equity and making sure that people that were unjustly negatively impacted by prohibition are getting some restitution,” he said. “But to this day that is very much a challenge for certain communities and certain individuals.”

OPPORTUNITIES: As the cannabis sector develops, Maturo said he sees the biggest opportunities in continued state expansion. “We’ve seen just in the last couple of years, more states either moving to adult use legalization or implementing laws to allow for medical cannabis,” he said. “We know whenever those states turn on, the industry grows incrementally.”

BDSA is excited to watch the development in Northeast states, the Insights Director said, especially New York and New Jersey, which are expected to be huge sources of revenue. “They’re going to be big markets,” he said. “Even states that are just flirting with the idea of adult-use, like Florida, could be huge opportunities for the industry. Opportunity is certainly in those newer, emerging states as well as those states that we predict will most likely go adult use in the next couple of years.“ Maturo added that BDSA also expects more international development in the next three to four years, with Germany rolling out an adult-use pilot program and some countries in South America picking up steam. “Market expansion is something we are really excited about, in terms of product and category development,” he said. “We’re starting to see more brands and manufacturers really explore and find success in that minor cannabinoid space.”

The Director stated there is a lot of excitement around cannabinoids as science begins to show what benefits they can provide for consumers. “It really helps to differentiate the value propositions that these brands are trying to bring to their consumer base,” he said. “As the science continues to expand on this as we see regulations surrounding research in cannabis become more friendly, those technological advancements will only continue to become more pronounced and make their way into the industry at large.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Aleafia Health (ALEAF), Acreage (ACRHF), Atai Life Science (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Awakn Life Sciences (AWKNF), Ayr Wellness (AYRWF), Body and Mind (BMMJ), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Columbia Care (CCHWF), Compass Pathways (CMPS), Curaleaf (CURLF), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Fire & Flower (FFLWF), Flora Growth (FLGC), General Cannabis (CANN), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Goodness Growth (GDNSF), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), India Globalization Capital (IGC),  Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), IM Cannabis (IMCC), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), MediPharm Labs (MEDIF), MedMen (MMNFF), NewLake Capital (NLCP) Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN),  Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor (SHFS), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).

Keywords: cannabis, weed, stocks, marijuana, cultivation, legalization, CBD, THC, hemp, consumption, spending, inhalables, SAFE Banking

Published first on TheFly

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