In case there were any doubts left, a new report from BDS Analytics and Arcview Market Research confirms that cannabis concentrates sales far outpace both flower and edibles in legal U.S. markets. This market segment shows no signs of slowing down.
Retail concentrate sales are projected to hit the $8 billion mark by 2022, based on data collected through the research company’s GreenEdge point-of-sale tracking service.
Concentrates have become the fastest growing of the three major segments of the legal cannabis market (flower, concentrates and edibles), largely due to consumer appeal, the report says—the ease of use, potency, discretion and portability of concentrates draws consumers in. Additionally, concentrates are a healthier option for cannabis inhalation, the report says.
“Much growth can be attributed to the beginner-friendly, brand-identified vaporizer cartridge subcategory,” the report reads. “A once-overlooked category with sales of under $100 million in 2014, cartridges now surpass the specialized subcategories of resins, waxes, etc.”
In 2017, vapes already made up more than half of total U.S. concentrate sales, the report continues, but the subcategory’s appeal to consumers will likely continue this pattern and reach nearly $6.5 billion in total U.S. sales in 2022.
This growth has benefits for the entire cannabis supply chain, the report adds.
Concentrates can offer cultivators decreased production costs and increased profits, as those who extract cannabis to produce concentrates can save processing costs by eliminating the trimming, manicuring and curing process. And since flower grown outdoors can produce the same quality concentrates as indoor crops, concentrate manufacturing also offers growers larger margins for their outdoor crops as wholesale prices continue to fall.
The increased profit margins from manufacturing based on outdoor flower will also help boost the sustainability of the cannabis industry, the report adds, as indoor cultivation consumes a large amount of energy.
Concentrates’ higher price points per unit may also make them more profitable for retailers when compared to flower, and for consumer goods companies, concentrates and other manufactured products offer opportunities to add value through branding and marketing, the reports says. This market segment also improves sustainability and lowers costs for distributors, who will require less shipping space and less fuel to move cannabis oil as compared to raw flower.
For customers, concentrates represent a more user-friendly entry point. For retail, this means leaps and bounds in sales numbers. The bridge between customer and retailer: brands.
“In developed cannabis markets, competition among cannabis businesses is so fierce that many experienced customers will expect quality products to be branded,” according to the report. On a long enough timeline, and in a North American marketplace that might one day see federal legalization in the U.S., this trend will only become clearer.
Because the industry is still in its early stages, despite growing at such a rapid clip, there’s opportunity for smaller brands to enter the marketplace relatively easily—especially in states like California, Colorado and Washington. Across the U.S., market fragmentation is about the only real constant in the cannabis industry right now. The door is wide open for an upstart processor to begin manufacturing concentrate products in, say, Colorado, but BDS Analytics and Arcview predict a plateau in the offing.
“While the volume of new product is a positive market of consumer demand, such fragmentation has its downside,” the report states. “A lack of consistency in product types and categories from market to market is confusing at the customer level and can inhibit nascent demand. Similarly, a lack of defined categories in the supply chain leads to duplicate efforts. These hamper individual bottom lines and contribute to an oversupply at the retail level.
“In other words, the market is poised for a shakeout.”
While the market itself certainly isn’t going to contract (concentrate sales are expected to eclipse $8 billion in the U.S. by 2022), the consolidation of brands will mean that only the most visible and farthest-reaching companies will thrive in an increasingly competitive arena. This is already the case in the longest-running legal adult-use market in the country, Colorado, where the top five concentrates brands have captured 49 percent of the market share, according to BDS Analytics and Arcview.
The report lists seven break-out concentrates brands, each performing at the top of their class: AbsoluteXtracts, Concentrate Supply Company, Craft, Evolab, Kurvana, O.penVape and Select Oil.
Those companies are each based in more mature markets, like Colorado, California and Oregon. As the BDS/Arcview report lays bare, those more developed markets allow extraction and processing companies to find the highest-quality single-source flower for their products. Often, due to a general oversupply trend out west, this allows extraction brands to lower their production costs and reap higher profit margins on the back end.
It’s not all cheery news, though; the BDS/Arcview report also looks at political concerns and points out the potential downsides of this market niche. While the FDA and lawmakers have rallied against youth vaping (of tobacco products), it’s unclear whether action would be taken to ban specific types of cannabis products at any point.
In Arizona, however, a recent appeals court ruling insists that cannabis concentrates are not protected under the state’s medical marijuana law, and thus patients are susceptible to criminal prosecution if they are caught in possession of thee products. Many dispensaries have continued to sell concentrates of all stripes.
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