CANNABIS CORNER: Cannabis Becomes Mainstream - Part 3

This is the third installment of a series authored by CERESLabs

Traders Magazine Online News, April 15, 2019

Sachin Barot

I field several calls daily from former trading associates inquiring about investing in cannabis. It's easy to skip the basics, but that can lead to confusion and missed opportunities. I've enlisted the help of cannabis business intelligence leader New Frontier Data so we can provide an editorial series that outlines the fundamentals of this rapidly evolving industry.

The latest forecast for the cannabis industry within currently legal states is poised to grow from $10 billion in 2018 to nearly $26 billion by 2025. In 2018 there were more than 24.5 million regular cannabis users (i.e., those consuming at least once a month) in the U.S., an increase of nearly 40% from five years earlier. As the cannabis market continues its dramatic increase, the financial opportunities also continue to expand as many consumers now view cannabis squarely in the ever-growing wellness arena. And while the younger population uses cannabis most frequently, seniors represent among the fastest-growing demographic segments in the industry.

New Frontier Data recently designed and conducted a national survey exploring evolving consumer preferences among forms of consumption in retail cannabis sales. The 2018-2019 Cannabis Consumer Report: Archetypes, Preferences & Trends, cites the top three reasons why consumers use cannabis are for relaxation (66%), stress relief (59%) and to reduce anxiety (53%). However, smaller percentages use cannabis for longer lists of reasons, including to improve sleep, treat medical conditions, enjoy social experiences, or stimulate creativity.

For other commentary from CERESLabs, please see:

Cannabis Corner: Part 2 - Cannabis in America . A Winding Journey

CANNABIS CORNER: Part 1: Snapshot of the Legal Cannabis Market at Year's End

Four in 10 consumers . both medical and discretionary . report using cannabis to relieve pain, reflecting the growing research on the efficacy of cannabis for pain management. Additionally, six in 10 medical patients report using cannabis to specifically replace either prescriptions or over-the-counter pain medications. Among medical cannabis patients, 94% report that using cannabis has improved their conditions, and 73% report substituting cannabis for other medications.

Among survey respondents, 36% reported consuming at least once a day, with 59% consuming at least once a week. Likewise, 60% of consumers spend less than $50 each time they purchase cannabis, but (with many consumers buying multiple times per month) nearly half (47%) report spending more than $100 per month. Approximately three in 10 consumers (28%) consider cannabis an important part of their identities, though younger consumers and those who consume more often are more likely to view cannabis as integral to who they are.

With such a wide variety of needs and users, the diversity of forms in which cannabis is consumed has grown dramatically. There are entire industries in the U.S. built around each of the consumption methods. Such include:

Flower (43% of annual revenue share across all product forms since 2015, down from 66%)

• Inhaling the smoke or vapor from dried cannabis flower is the traditional form of cannabis consumption
• Creates an immediate high
• Delivery methods:
  • Joint . flower rolled in paper and smoked
  • Pipe . flower smoked in a pipe, usually glass
  • Bong . flower smoked in a beaker-like device containing water to blunt some of the inhaled heat
  • Vaporizer . relatively new and does not combust the flower but uses lower heats to create vapor rather than smoke

Edibles (28% of cannabis sold, up from 10% in 2017)

• Edibles take many forms from traditional cookies and brownies to honey, cooking oils and pills.
• Takes 30 - 45 minutes to feel effect
• Delivery methods:
  • Gastrointestinal . Basically, eating it in any form
  • Sublingual . Under the tongue absorption does not require cannabis to travel through the digestive tract creating a quicker high

Concentrates/Oils (28% of cannabis sold, up from 17% in 2015)

• Quickly growing in popularity due to vape pen usage
• Creates an immediate high
• Delivery methods:
  • Dabbing . Much stronger than flower, touching the concentrate to heated surface and inhaling the vapor
  • Pens/Vapes . Fastest growing segment. Pre-loaded oil cartridges attach to pen for relatively smokeless portable smoking

Topicals (1% of cannabis total cannabis sales, a niche market but growing in popularity, especially among seniors)

• Topicals are used to alleviate various physical ailments and applied directly to effected area of the body
• No "high' effect
• Delivery methods:
  • Dermal . Applied directly to the treatment area
  • Transdermal . Absorbed through the skin, this method acts quickly and permeates through the entire body

Each one of these products must undergo analytical testing prior to sale to ensure its safety. While regulations differ by state, this mandatory testing mitigates contamination risks to the public. It is the job of the cannabis analytical testing laboratories to issue certificates, called a COA or Certificate of Analysis, that signals that the cannabis product tested does not exceed state requirements in several areas including potency, pesticides, mold and other contaminants (aka filth!). At CERESLabs, we work with clients every step of the way, from only using state-of-the-art equipment to employing proprietary R&D technologies, to ensure every product that leaves the lab is exactly what we say it is and is exactly what the consumer wants - a safe, reliable product from a brand they love.

CERESLabs is located in the Salinas Valley with some of the largest vertically integrated cannabis companies in California. One such company, Grupo Flor (www.grupoflor.com), has licenses in cultivation, manufacturing, distribution and retail. Paul Henderson, Grupo Flor CEO states, "Our client base is very diverse. Overall, we see clients making the shift away from flower to vape pens, edibles, and topicals. Our dispensary, East of Eden, is seeing emerging brands focus specifically on a demographic profile or ailment, like pain management or anxiety. It's exciting to watch cannabis help people in their everyday lives ."

No matter the method of consumption, trends indicate that cannabis is becoming an integral part of people's lives. This opens up virtually endless opportunities in both existing and emerging cannabis sectors and states.

Sachin Barot is CEO of CERESLabs

In 2016, Barot left his 20-year career on Wall Street to pursue the cannabis gold rush in California. He co-founded CERESLabs, a Cannabis Analytical Testing and Research Company, with a mission is to ensure safe and appropriate cannabis products for all end-users.

New Frontier Data is an independent, technology-driven analytics company specializing in the cannabis industry. It offers vetted data, actionable business intelligence, and risk-management solutions for investors, operators, and policymakers. New Frontier Data's data and reports have been cited in more than 80 countries worldwide to inform industry leaders. Founded in 2014, New Frontier Data is headquartered in Washington, D.C., with additional offices in Denver. For more information or media inquiries, please visit www.newfrontierdata.com or send email to info@newfrontierdata.com.

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