Dec 2, 2020

Understanding the Cannabis Market: Why Production is the Next Wave of Opportunity

The cannabis industry is among the most rapidly expanding markets in the world. Last year, it was the fastest growing industry in the United States, adding nearly 34,000 jobs and growing in size by over 30% in North America. Globally, the cannabis industry is expected to value over 70 billion USD by 2027, with global spending on legal cannabis expected to overtake 40 billion USD by 2024.

When Canada opened its economy to fully legalized recreational and medical marijuana in 2018, sales at cannabis stores totaled over 150 million CAD in three months, reaching $908 million within a year. During the same period, the total number of cannabis businesses in the country nearly doubled, bringing 45% of Canadians within a 10km radius of a legal cannabis seller.

Internationally, market research suggests that the fastest growing cannabis industries are located outside of the United States and Canada. In 2019 alone, spending on legal cannabis more than doubled overseas, increasing from 367 to 840 million USD.

There’s no doubt that the cannabis industry is rapidly evolving–and that medical and recreational cannabis is the global economy’s burgeoning cash crop. The question is where opportunity lies next. Where should investors look to capitalize on this expanding industry, and where is the next wave of innovation for cannabis businesses of all types?

The answer is production

Supply chain management will be the key market differentiator for success in the cannabis industry, and cannabis businesses who can stabilize a low-cost, reliable supply of raw resources will be best positioned to expand alongside the market.

It’s a fairly basic principle, especially for a flourishing commodity product, but supply chain issues have plagued the market since its inception.

Many licensed producers and micro-cultivators have buckled under exorbitant costs for licensing, development, staffing and production in countries like Canada and the United States. Similarly, manufacturers and distributors have struggled to turn profits while sourcing from cultivators in their jurisdictions, and legal requirements have often prevented cannabis companies of all sorts from vertical integration within their locations.

Up and down the market—from recreational cannabis to pharmaceuticals—partnership with a knowledgeable, scientific and cost-effective producer will be crucial, aiding all varieties of businesses across the cannabis industry, like:

Storefronts and E-Commerce Companies

The scope of cannabis retailers and dispensaries seeking to directly trade with a cost-effective and scientific producer spans countless storefronts and e-commerce companies.

Often, many of these businesses—particularly in Canada—are prohibited from applying for licenses that would allow them to invest in cannabis cultivation and vertically integrate their companies. As a result, many cannabis retailers and online sellers are compelled to source from micro-cultivators in their jurisdictions who struggle with high costs of production, or look internationally for trade with producers in lower-cost locations.

Cost-effective production needs are particularly notable for dispensary franchises and cannabis brands, who are quickly rising to dominate the recreational market in countries like Canada. Many of these companies’ business models are already based on growth through partnership, and their access to exclusive resources is a motivating factor in growing their business.

Licensed Producers and Cultivation Partners

The costs of licensing, compliance and production have kept many aspiring producers from entering the market. For those that have stalled operations because of exorbitant production expenses, the opportunity to share resources with a producer in a lower-cost jurisdiction is obvious.

Yet, the vast market opportunities for cannabis producers extend into less visible corners of the legal market, too: With demand for cannabis supply increasing around the world, myriad agriculture companies and producers of other commodity crops are looking to join the industry, and partnership with established producers is most often the choice method of doing so.

Most agriculture companies looking to transition into cannabis production are cautious about the expenses associated with cultivation or are unable to secure a license for production in their countries. Frequently, these companies will pursue joint venture partnerships with established commercial growers, often becoming principal investors (and, sometimes, whole buyers) of commercial cannabis cultivators to obtain a stake in lucrative cannabis production.

A producer like Massive Therapeutics, established in a low-cost jurisdiction and able to fulfill agreements with customers all over the world, is best positioned to capitalize on a similar opportunity.

Manufacturers and Distributors

Manufacturers and distributors—businesses who process raw cannabis, develop products like oils, joints and edibles, and distribute finished products to retail companies—are essential players in this new industry. For most, establishing supply agreements with a transparent, reliable and cost-effective grower is increasingly important: Because manufacturers and distributors must supply retailers with branded and wholesale products while making a profit, proper supply chain management is crucial.

Various manufacturing, branding and cannabis distribution companies operate a family of cannabis businesses encompassing a wide variety of retail products, usually with scale operations in the United States and Canada. While some operate their own growing facilities, many have begun establishing partnerships with licensed producers to better manage their supply of raw cannabis.

As product manufacturers and distributors continue to expand alongside the retail market, the need for a reliable and low-cost cannabis supply drives their reach into production, often establishing joint-venture partnerships to achieve vertical integration.

Pharmaceutical and Medical Research Companies

Pharmaceutical, drug development and medical research companies represent the fastest expanding segment of the cannabis market—particularly in Israel, whose pharmaceutical industry values close to 4 billion USD and is recognized as a world leader in cannabis research.

Because many pharmaceutical companies are focused on the research, development and clinical testing of their varied products, most are without a connection to the global cannabis economy and often require partners across the industry to properly introduce their products to market.

A pharmaceutical company with medical cannabis products in various stages of regulatory approval, for example, might require joint venture alliances around the globe to manage their raw resources. And because their production must strictly comply with scientific and regulatory standards, a medical-grade grower who can provide transparent, direct trade is essential.

A producer like Massive Therapeutics, who will grow cannabis in state-of-the-art modern hybrid greenhouses, allowing for complete data collection across cultivation and total environmental control at a lower cost than producers anywhere else, would be best positioned to cultivate for this segment of the market.

The Upshot: Cutting-Edge Cultivation Maximizes Production Opportunity

What does all of this mean?

One variable unites businesses of all types across the cannabis market: At a crucial point in market development, there’s a deficiency of producers who’ve solved the complicated puzzle of how to cultivate cannabis cost-effectively.

Production, in turn, is the next wave of opportunity, and cannabis cultivators who can stabilize the supply chain for companies around the globe will be the change-making agents responsible for advancing the market to new levels of profitability. Billions of dollars have already been spent by distributors, manufactures, retailers and pharmaceutical companies to market recreational and medical marijuana—and the full weight of that industry now rests on the cutting edge of cultivation.

Growers like Massive Therapeutics, who are spearheading cost-effective cannabis cultivation from low-cost tropical jurisdictions, offer the answer to innovation in production. Able to grow cannabis at a lower cost than anywhere else while leveraging the Caribbean’s new market to institute modern, scientific and cutting edge cultivation techniques, a cultivator like Massive Therapeutics can stabilize supply for any number of these businesses.

And markets like Jamaica, who are opening to the global cannabis economy with a thorough framework for international trade, have the capability to become leaders in production and export, supported by commercial growers who’ve invested in its burgeoning industry.

Cannabis companies who can find opportunity in these two crucial variables—innovation in low-cost cultivation and support for change-making markets—hold the keys to the global industry.