VIDEO INTERVIEW: What’s The Buzz for Cannabis in 2023?
The following video presentation first appeared in our premium trading service, Marijuana Profit Alert. The transcript below was edited for clarity and concision. My questions are in bold.
With me today is Roy Bingham, CEO of BDSA, the leading research firm for the global market for recreational and medicinal cannabis. The research coming out of BDSA is considered the gold standard.
Cannabis equities had a rough 2022. We’re immersed in an overall bear market right now. Stocks are slumping again as inflation runs hotter than expected, and interest rates will probably run higher for longer. What’s your prognosis for marijuana equities within this bleak context?
As we all know, 2022 was a tough year not just for the stocks but for the cannabis market overall. It grew in the United States by only 2.3%, to $26 billion, which was the slowest growth rate we’ve ever experienced in the industry.
That was driven by contractions in the big states out West, the mature markets like California, Colorado, Oregon, Washington, Arizona, and Nevada. All had either a flat year or a contraction.
This was largely driven by price reductions. Prices were down very significantly. California prices were down 12%. Colorado prices were only down 6%, but Arizona was down 19%, and Nevada was down 14%.
And there were a lot of headwinds for the industry in competing with the illicit markets out there, with the burdens of taxes and regulatory controls, etc., and with the oversupply that we saw in a lot of those markets as well.
It was tough, but here’s some good news. We’re projecting that growth in the United States will be restored in 2023. We’re seeing 14% growth in the market, from $26 billion to $30 billion this year, and, when we look longer term, a compound growth rate of 11% for the United States market, to $45 billion by 2027.
In due course, I imagine the financial markets will recognize the growth relative to other markets; 11% growth is a hell of a lot better than most CPG (consumer packaged goods) sectors I can think of.
Companies will execute their plans profitably, and the stocks will get recognized. But at least it’s an improving environment, and the long-term opportunities are very good.
Between now and 2030, how many new states do you envision adding legal markets, whether it’s recreational or medicinal?
We expect 12 new states to launch adult-use markets between now and 2027. And we also expect 12 new medical-use states between now and then. And that is, of course, the biggest engine of growth in the industry.
For the adult-use states, of course, we have the recent additions of New Jersey and New York, two big states that are going to end up being very substantial markets. But beyond that, we’re expecting Connecticut, Missouri, Maryland, Oklahoma, Virginia, and Florida eventually — although it’s a big medical market now — by 2025 or something like that. Ohio and Pennsylvania, of course, are other big market opportunities.
And then the highlights for the medical states are the states that three or four years ago, we would have all said, “You’re kidding, that’s not going to happen.” But Alabama, Georgia, Kentucky, Mississippi, South Carolina, North Carolina, and Wisconsin are all on that list. There’s a high probability that we’ll see those markets open up.
Germany is on the verge of legalizing marijuana. Will it set an example for the rest of Europe?
Germany is grappling with the European Union’s legal restrictions and has to decide what sort of form it’s going to go to the EU with for permission. And a lot of challenges associated with that will likely introduce additional delays.
We were thinking that that market would get going during 2023. I think that there’s now a risk that it could be 2024, and it could be beyond.
When we come back to the big number, in 2027, we expect the global market to be $60 billion, of which the U.S. will be about $45 billion. Canada will be about $6 billion.
The remaining $9 billion will be those international markets that are just nascent at present. We do expect Germany to be the No. 1 international market, followed by Mexico, which is also doing a regulatory dance around this topic, although it isn’t burdened by the exterior forces of the European Union.
Of course, Germany is a leading force within Europe. Many countries have explicitly said, “we’ll see what happens with Germany and the EU regulations, and that will determine what our policy is going to be.” If the German market does go ahead in a significant way, we expect several other countries to follow suit.
It seems that marijuana demand is resistant to economic downturns, but how much of that thesis has been oversold?
Many cannabis consumers use cannabis to treat some kind of condition. They’re often treating things like anxiety, sleeplessness, back pain, other pain, etc., with cannabis. Of course, it becomes one of the highest-priority purchases for their pocketbooks.
When your wallet gets squeezed, you prioritize, and you still tend to consume cannabis. So it is somewhat resistant.
I don’t know that we can say anything is resistant completely to an economic downturn that includes unemployment. And I mention this because a lot of cannabis consumers are relatively low on the socio-economic spectrum. When you start to see layoffs in lower-paid positions, that might have more of an impact on cannabis. But, touch wood, we’re not seeing that.
What are some of the more interesting pick-and-shovel plays in the marijuana industry that you’re seeing?
Naturally, we’re a pick-and-shovel for the industry. We’re a provider of market data and data analytics in general. And I think the technology in this space is an interesting sector.
It’s also suffering from the malaise of investor capital in the industry space, combined with a bit of a technology downturn at present as well.
Everybody wants to know about their market, so data is very valuable. It’s a sector to be investigated. And then point-of-sale systems, ERP (enterprise resource planning) systems, the way that you run businesses.
And then, of course, you’ve got marketing and sales capabilities. Advertising is still pretty small in this industry compared to others because of the legal restrictions, but eventually, people will find an avenue to invest more money in that side of the business.
Eventually, you’re going to see some 10% to 15% of revenues being spent in that area, like in other CPG products. We’re far, far away from that now, so this could be an opportunity.
Roy, that was very useful. Thanks for allowing us to tap your considerable expertise.
Editor’s Note: We could be facing a “break out” year for marijuana and the ancillary industry of psychedelics. New legal markets equal new profits, and higher share prices, for well-positioned companies. That’s why I’ve launched an investment service called Marijuana Profit Alert.
My publication provides specific, actionable advice on the best investments in the trends I’ve just discussed. In my portfolio of holdings, I strive to strike the right balance between risk and reward. Click here to learn more.
John Persinos is the editorial director of Investing Daily.
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