California’s cannabis edibles market is growing within a legal industry that could grow to $3.7 billion in 2018 and reach $5.1 billion to rival the beer market by 2019.

While the cultivation and concentrates markets are getting most of the buzz, it’s the edibles market that represents one of the strongest sectors for growth in the cannabis space. This market sector is driven in large part by new users and those focused on health and wellness who want a smoke-free cannabis experience. There are signs this consumer segment is already flooding into the California cannabis market.

Edibles, growth segment for overall cannabis market

In 2016, Californians consumed close to $180 million in edibles, according to Arcview Market Research, representing 10 percent of total cannabis sales. BDS Analytics reports that after only the second month into full legalization in February 2018, edible products accounted for 18 percent of total California cannabis licensed retail sales. Those figures will likely increase once the recreational market becomes more established.

What happened to the edibles market in Colorado and Washington after the adult-use market became legal may be an indication of what investors can expect in California’s market in the next few years. According to Arcview Research, after Colorado’s legislature made recreational cannabis sales legal in the state, the edibles market went from $17 million to $53 million in the first 2.5 years. In Washington state, cannabis edibles sales soared 121 percent in 2016 following the opening up of its adult-use market.

California’s cannabis edibles market serves health and wellness

Several factors make edibles stand out as a true growth sector in the cannabis market, but arguably one of the most important drivers is the expanding health and wellness industry. Grand View Research predicts that the global functional foods segment of this market will reach US$255.10 billion by 2024.

The wellness industry is focused on meeting consumer needs related to sleep, pain relief, mood imbalances and overall well-being. We are beginning to see an overlap between this industry and that of cannabis as consumers become more informed about its many benefits.

“Cannabis and wellness go hand in hand. And it’s evident that a significant part of the market favors edibles over other forms of consumption, like smoking or vaping”, Daniel Hood, co-founder of California edibles company CALIGOLD, told INN. “We find this to be particularly true for new consumers looking for long lasting effects to reduce chronic pain, for example. It’s simply a more comfortable and familiar means of using wellness products.”

“The issue is that many edibles focus first on the medium, like chocolate, and treat the cannabis as a secondary part of the product,” he added. “In practice, the medium should be considered a means to deliver specific cannabinoids that help customers in many different ways. Taste and presentation are certainly important, but I would encourage consumers to look first to the cannabis formulation carried in the chocolate or gummy or mint.”

Medical and recreational cannabis users alike are drawn to edibles products, mostly because of the benefits over the traditional consumption route of inhalation. The CDC reports that the smoking rate for adults is on the decline falling from 20.9 percent in 2005 to 15.5 percent in 2016. Edibles allow new and health-conscious consumers to enjoy the benefits of cannabis without having to light up, providing the ability to medicate at work or at home with children. Edibles are also an excellent entry point into the cannabis market for new users.

“Legalization always creates consumers who are new to cannabis, and their profiles and habits stand apart,” explained BDS Analytics in its report on the leading cannabis trends for 2018. “The newbie skews towards women between the ages of 25 and 44, and half say they are in the market to explore medical applications.”

Edibles also earn higher revenues and often account for 25 percent to 60 percent of a dispensary’s profits, said Forbes Contributor Mike Montgomery. With recreational sales now legal in California, companies can sell cannabis edibles in non-dispensary stores as long as they obtain the proper city and state licenses.

California’s well-established medical market

California is home to a well-established medical marijuana market with around 3,000 retail storefronts and 7,500 delivery services. “Let’s not forget that California has had a legal medical framework since 1996, and that we probably have one of the most mature edible markets in the world,” said Argudo.

Prior to legalization, California’s edibles companies could only sell to the state’s roster of medical marijuana patients. For investors, there are opportunities in the edibles market to capitalize on mature edibles brands as they scale to match the growing market under the new legal framework.

Diverse product range offers diverse opportunities for investment

California’s edibles market is already diversifying, with several different types of edibles including everything from candies, mints and baked goods to sports drinks and teas. Low-dose products are especially appealing for new consumers.

“Among edibles consumers, newbies are more likely than cannabis veterans to seek low-dose products,” said BDS analysts. In Colorado, for example, growth in this product segment reached 83 percent at the close of 2017. “Meanwhile, consumer research reveals that 33 percent of cannabis consumers seek low-dose options.”

The top performers in the US edibles market include cannabis-infused chocolate, gummies and beverages.

CALIGOLD is a well-established producer of high-quality chocolate bars which uses gourmet ingredients including Colombian-sourced cocoa and cannabis strain-specific infusions. The company took first place at HempCon in 2014 for best edible, then again at Edibles List Magazine in 2017 for their THCa chocolate. CALIGOLD publishes data on dosing measurements to provide new users with safe experiences. Earlier this year, High Hampton Holdings (CSE:HC,OTCMKTS:HHPHF,FWB:OHCN) acquired CALIGOLD making it an entrant in this growing space.

Plus Products, for instance, develops and manufactures all natural and precisely dosed cannabis-infused gummies from its 2,000 square-foot production facility in Adelanto. The facility was built with capital raised in 2017 in a funding round led by The Green Organic Fund and Verde Mountain Fund. In a second round of financing led by Toronto-based Serruya Private Equity Partners and New York-based Navy Capital Green Fund, Plus Products raised roughly US$6 million in April 2018 to fund the expansion of its product lines and production capabilities.

Nutritional High (CSE:EAT,OTCQB:SPLIF,FWB:2NU)’s California subsidiaries Pasa Verde and Calyx have partnered with Green Growth Brands Inc. (CSE:GGB,OTCQB: GGBXF), formerly Xanthic Biopharma to produce and distribute Xanthic branded water soluble cannabis-infused Hydration, Energy, Rescue and Recovery drinks in California. These products are designed for improved bioavailability and accurate micro-dosing.

This article was written according to INN editorial standards to educate investors.

Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.


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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, where he worked on lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now seeing a return to form by way of the excitement for an ongoing opening process in the US.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes for cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.


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“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro environment pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s current potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business potential, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed to work on the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be at the moment.


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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance.

In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadians waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent an increase to their already thriving operations.

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All interested parties can join the conference call by dialing 1-888-231-8191 or 1-647-427-7450, conference ID: 4880609. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 20, 2021 . To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 4880609.

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