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CANNABIS ANALYSTS

The authority when it comes to analyzing the cannabis industry

Colorado Infused Edibles Space

Since legalization came aboard in Colorado over two years ago, the infused edibles space of the marijuana industry has seen great strides, especially considering all the initial hurdles it experienced from a safety & regulatory standpoint. First of all, edibles—chocolate bars, gummy & chewy candy, cookies—used to come in appealing-to-the-eye packaging that unsuspecting children would not hesitate to consume. Furthermore, the onset of the industry also saw that very frequently, the THC content readings on edibles were not very accurate– studies showed that the actual THC content on products differed substantially from advertised amounts. In addition, the snack size and packaging of these products might make people logically see edibles as single-serving treats, while in reality they might have multiple, causing consumers to accidentally ingest higher doses of THC than desired. Would you eat a small Hershey-sized bar in 8 sittings? Along with the fact that THC is absorbed significantly more slowly by ingesting edibles than by other means of consumption (making these slightly more dangerous due to their unpredictability), these factors caused initial strong opposition to edibles.

These concerns led Colorado authorities to quickly and efficiently draft new regulations, such as laws requiring the number of servings (each serving is 10 mg of THC) to be displayed on packages. Stricter packaging and labeling requirements have been established, making edibles more easily recognizable by the public. Edibles can now contain no more than 100mg of THC and must be wrapped individually, or be split into clearly-defined portions with no more than one serving. Anecdotal lab tests have shown that THC content advertised in edibles has become more accurate 2015 over 2014 , with most experts agreeing that a 10-20% shortfall compared to advertised THC amount is acceptable, and we believe edibles manufacturers will continue to improve. We are impressed by these rapid legislative and commercial responses, and we believe they will only allow the continued growth in the edibles space to remain steady.

Colorado Edibles

The growth in the CO edible space has been remarkable. Please note that here, we are not analyzing non-edible products such as infused beverages. A total 4.8 million units of edibles were sold in 2014 in the retail and medical spaces combined. Moving forward to 2015, CO saw over 5 million units of edibles sold by August, and while we don’t yet have edibles sales data for the last quarter, we expect that close to 8 million units of edibles were sold during the entire year—that’s nearly a 70% increase year over year in the edible space’s volume handled.

This growth was made possible by the growth of the retail space. Given the less “invasive” nature of edibles where one simply eats a savory treat, as opposed to smoking which can be a bit more daunting to new users and can still cause a range of respiratory and other issues to those who are more experienced, we assumed a bit more growth would have been observed in the medical space. Nevertheless, that same aspect, as well as the fact that edibles normally produce a stronger and longer high, helped the impressive growth in the retail edible space.

A total 2.9 million retail edible units were sold during 2014. In 2015, that number was overcome by July, and we expect around between 5.5 and 6.0 million units to have been sold for the full year— the retail market volume doubled year over year! While we expect the medical space to remain moving around 190,000 units per month, we are excited to see what the retail space has in store for us during 2016. As more regulation and spectacular sales data continues to solidify the outlook of the Colorado edible space, we look forward to examining the development of the space across different states, and advise you to get a piece of the pie—or better said, cook it yourself— while you still can!

Colorado Retail & Medical Market Update

Over two years have passed since retail marijuana has been available for consumption in the state of Colorado, and the trends we see in the retail and medical markets are very interesting.

As shown in the above graph, within the CO commercial regulated system the volume of medical and retail sold marijuana has been increasing; since recreational cannabis became legal in January 2014 to the end of September 2015, over 116,000 pounds of retail cannabis have been sold, with the volume of flower sold increasing by over 900% from 1,000 pounds sold in January to 11,000 pounds sold in September.

While one could have guessed that the volume of flower sold in the recreational market would soon overtake that of the medical one, medical sales have also surged, increasing from 3,200 pounds in January 2014 to over 14,100 pounds in September 2015 and supplying a total of 220,000 pounds of flower. That’s more than the weight of 20 elephants! The gap between medical and retail sales has been narrowing: since the beginning of 2014, medical market marijuana volume was 6.0x that of retail volumes but during the first three quarters of 2015 medical market volumes was a more modest 1.4x that of retail. We believe this medical-to-retail ratio of flower sold will continue to decline slightly in 2016, but we don’t anticipate it to change significantly or fall lower than 1.0x – there are incentives that will keep medical volumes up because for those with registration cards, it’s often cheaper, one can obtain up to two ounces as opposed to one ounce in the recreational market, and registry cards can be obtained by people under 21.

While we believe the volume gap will continue to close slightly, the total growth in the overall volume of the market is evident, increasing 75% in 2015 over 2014. From a revenue perspective, total sales in 2015 were upwards of $1B, with $600MM coming from retail sales and $400MM from medical, over 40% more than 2014’s $700M in total sales. Although retail marijuana brings in higher revenues, do not forget that the majority of marijuana is still sold in the medical market, which will just as well continue to offer all sorts of opportunities to be exploited as it keeps on expanding (e.g. cannabis testing, security, delivery, glass piece manufacturing, etc).