Rising High: Exclusive talk with cannabis market research firm BDSA

In this edition of “Rising High,” The Fly conducted an exclusive interview with Brendan Mitchel-Chesebro, industry analyst at BDSA, a Colorado-based cannabis market research and data analytics firm. Here are some highlights:

GREEN WEDNESDAY, BLACK FRIDAY: In its holiday season research, BDSA said Green Wednesday, the day before Thanksgiving, and Black Friday have historically seen the highest cannabis sales boosts of any holiday besides 4/20. “Black Friday is obviously a big shopping day across the board,” Mitchel-Chesebro said. “There are a lot more people who are going out to retailers and buying and that is compounded by the fact that a lot of people are traveling when you are talking about Thanksgiving.”

Consumers may be looking to manage stress and stressful aspects of holiday traveling, as many people use cannabis for use occasions associated with stress reduction, he said. “We do expect that sales trend to continue,” the analyst said. “We already have some data from Halloween sales as well as from earlier holidays this year like 4/20 and 7/10, which show the sales and volume increases we expect to see around those holidays. We do expect this year to be a really big day for cannabis sales on Green Wednesday and Black Friday.”

He noted that edible sales see a bigger increase than other product categories around most wintertime holidays. “For November 2022, during the week for Green Wednesday, Thanksgiving and Black Friday, incremental dollar sales had a daily average 15.3% higher that week compared to non-holiday weeks,” Mitchel-Chesebro said. “When we’re looking at the edible category across all the markets that we track, daily average edible sales for the week of Thanksgiving were about 22% higher compared to non-holiday weeks in November 2022.”

Edibles offer a familiar form factor for people who may not be frequent consumers and need something to get through the holidays, he said. “It does not have the learning curve that a flower product or an extract product might,” the analyst said. “It’s easy, it’s convenient and it’s fast to just pop open the container, take a gummy edible and get to where you want to be.”

PRICING: The company also found that despite a 3% reduction in product pricing during the week of Thanksgiving in 2022, there was a nearly 50% surge in basket counts. “Part of what is driving that outcome is just the promotions that a lot of people see around the Thanksgiving holiday,” Mitchel-Chesebro said. “Pricing is a little bit of a tough issue as it varies pretty significantly depending on market.”

He pointed to recent and emerging markets like the Missouri and Maryland adult-use market, where they have higher prices due to increased demand, a massive consumer base and lower supply. “But overall, in the cannabis industry, we have seen really strong price compression for about two years,” the analyst said. “So a lot of the discounting and promotion strategies around the holiday, in my opinion, should be geared towards cross-purchasing.”

NEW YEAR’S SALES: BDSA data from 2022 also showed that sales were 16% higher during the week of New Year’s compared to non-holiday weeks in December 2022. “There are a few different trends there,” Mitchel-Chesebro said. “Consumers do cite consuming more frequently for less social or more lowkey usage occasions as opposed to things like parties or celebrations. However, there are still a lot of consumers that consume for high-energy events and special celebrations. Those are more of the use cases that are driving this increase in cannabis around New Year’s.”

According to the company’s Consumer Insights data, people report consuming marijuana most often for use occasions like wanting to get creative or to unwind and relax, he said. “But hanging out at small get-togethers or more high-energy events like a New Year’s party still factor into cannabis use occasions for many consumers,” the analyst said. “When we’re talking about hanging out or small get-togethers, 61% of past six-month consumers report consuming cannabis every one of those occasions. When we are talking about high-energy or letting loose, partying and going out, 41% of consumers report consuming cannabis on each of those occasions. And half of consumers report consuming cannabis for every occasion that they are celebrating a special event.”

FRIDAY NIGHT SALES: The company also noted that dollar sales on December 30, 2022, the Friday preceding New Year’s Eve, were 43% higher than daily sales average for the month. “That goes back to the seasonality that we expect, not just as far as spikes around holidays, but what days of the week people usually buy the most cannabis,” Mitchel-Chesebro said. “Cannabis sales are usually highest Thursday, Friday and Saturday. Those are the days that you would expect to see the biggest income during a non-holiday week.”

When holidays fall on a Monday or Tuesday, BDSA usually expects to see the biggest jump in sales from that holiday to occur on the preceding Thursday or Friday, he said. “A lot of people are getting off work and Dec. 30, 2022 was a Friday,” the analyst said. “It’s just a convenient time for them to purchase cannabis to gear up for the New Year’s holiday.”

CAPITALIZING ON HOLIDAY SALES: When asked how cannabis retailers and brands can make the most of the holiday sales boosts, Mitchel-Chesebro said retailers should consider a cross-purchasing strategy. “They should leverage products they know will be popular around the holiday to drive an increase in sales in other products,” he said. “There’s a number of different cross-purchasing strategies that people can employ like pairing inhalable products, like a pre-roll or a vape, with some of the most popular edible products to drive up that volume.”

The analyst added retailers should focus on having enough inventory of the products they know will sell and on being prepared for what is going to happen on the holiday itself. “Having enough employees to be able to handle a surge in foot traffic, making sure that the store layout is conducive to getting people in and out, and managing the volume that they are going to see are things retailers need to really focus on for the holiday,” he said.

When looking at brands, holidays require a bit more planning as product formulation and development takes more time than gearing up as a retailer, Mitchel-Chesebro said. “One of the trends brands should look at in the long-term are products that are mood and effect driven,” he said. “Rather than marketing them as a sativa or an indica, marketing towards the need state and the use occasion. We’ve seen a lot brands specifically in the edible space being really successful with this by incorporating minor cannabinoids like CBN, which people believe is anecdotally helpful with unwinding or getting ready for sleep.”

The analyst noted there are many brands in the Colorado and California markets that are applying these tactics. “We’ve seen some brands use different minor cannabinoids or different terpenes and adaptogens to drive a more active, high-energy need state,” he said. “Some of them have been really successful in marketing specific products like this. If you want to attract consumers, specifically consumers who might not be as knowledgeable about cannabis, marketing towards specific need states and offering a familiar form factor are two ways to do that.”

CANNABIS REFORM: When asked about his views on future cannabis reform, Mitchel-Chesebro said he believes cannabis will likely be rescheduled bringing some benefits for the industry, but also many unknowns. “One thing that is good that is likely to come from that is eventually people will have access to safe banking,” he said. “We’re not sure how soon access to banking and other financial services will open up with rescheduling, but that is one thing a lot of people are hopeful for.”

The analyst added operators in the space are also hopeful for resolution to the issue of IRS code 280E, which impacts profitability across the industry. “There is hope that this rescheduling, once it actually goes through, will assist with that,” he said. “We don’t anticipate that SAFER Banking or other federal bills will get passed in 2024.”

A rescheduling will still have a significant impact if it goes through, Mitchel-Chesebro said. “But there are a lot of unknowns,” he said. “A lot of people look at it and they are thinking about the unknowns in a negative way. For example, because it is going out of Schedule I, is cannabis now going to be under the jurisdiction of the FDA and are companies going to have to get FDA approval to sell products across state lines? What would that look like? There are a lot of unknowns that people haven’t really been able to work out what the effect is going to be.”

CHALLENGES: When asked about the largest hurdles facing the cannabis industry, the analyst cited the effect on profitability due to 280E and the constraint of market growth by lack of retail availability. “Pricing is definitely a big challenge and there are the challenges that tie in with that,” he said. “The tax situation with 280E really impacts profitability. Even before the price compression we’ve seen for the past two years, a lot of businesses were still only seeing single digit margins. Continued price compression has really made that tougher for a lot of people.”

A lot of markets at the state level also face a big issue with insufficient retail availability and illicit competition, Mitchel-Chesebro said. “It is still a problem in California,” he said. “There are still a lot of areas of the state that are populous that for the most part are cannabis retail deserts. They have delivery services, but there might not be a big selection of them. For a state where the cannabis industry is as big as it is, the ultimate potential of the industry is being constrained by retail availability.”

The analyst added this can be seen in some new markets as well. “One of the big things holding New York back from meeting its full potential is legal retailer availability,” he said. “They still have to deal with the same issues that markets out West are dealing with like illicit competition. Enforcement efforts have been ramped up in New York, but we’ve yet to see anything tangible that shows they made a lasting effect on the presence of these illicit market retailers that are operating in the state.”

OPPORTUNITIES: As the cannabis space develops, Mitchel-Chesebro said BDSA is keeping an eye on opportunities within the different cannabis product categories. “If you are looking at the top level, product category share is likely stabilized across most of the markets that we track,” he said. “We see flower products and vape products making up the largest share of sales, flower being bigger than vape, after that edible, extracts, pre-rolls, shake and trim. When we look a little more granularly and we look at subcategories doing well within those categories, we’re still seeing some shifts.”

The shifts are being driven by consumer preferences and innovation in the space, the analyst said. “In the vape category, we’ve seen really strong growth from the disposable vape category in recent years as opposed to the cartridge vape,” he said. “These offer another level of convenience to the consumers and have beome more widely available recently. When we are looking in the extract category, like dabbable extracts, we’ve seen really strong growth in solventless products like rosin.”

Mitchel-Chesebro said there is a lot of potential for brands to grow through positioning these products as their premium product offering within the extract space. “We’ve also seen a lot of growth within the infused pre-roll space, particularly with solventless infused pre-rolls,” he said. “Even though it seems like some markets may be stagnating and some markets may be taking a downturn, there is still a lot of opportunity for growth if you’re looking down at granular data within those markets.”

Looking at opportunities on a macro level, the analyst said BDSA has seen a lot of growth in East Coast and Midwest markets over the past year. “Missouri had a really successful adult-use market launch, so did Maryland,” he said. “As far as what the biggest opportunities are, a lot of markets out West like Colorado and California, and more mature markets like Michigan are heavily saturated at this point. They’ve been dealing with really tough price compression, so the biggest U.S. growth opportunities are going to come from the Midwest and the East Coast.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Aleafia Health (ALEAF), Acreage (ACRHF), Atai Life Sciences (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Ayr Wellness (AYRWF), Awakn Life Sciences (AWKNF), Body and Mind (BMMJ), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Columbia Care (CCHWF), Compass Pathways (CMPS), CURE Pharmaceutical (CURR), Curaleaf (CURLF), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Enveric Biosciences (ENVB), Fire & Flower (FFLWF), Flora Growth (FLGC), General Cannabis (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Hemp (HEMP), 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), Lucy Scientific Discovery (LSDI), MediPharm (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus (NUMIF), Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor Financial (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).