BDS Analytics’ Top 10 Cannabis Market Trends for 2019 Webinar

Our “Top 10 Cannabis Market Trends for 2019” webinar took place on January 17, 2019 and was hosted by Roy Bingham, BDS Analytics’ Co-Founder & CEO and Jessica Lukas, VP – Consumer Insights.The trends were featured in a January blog post that has been cited more than 100 times by major media outlets and industry blogs. Click to view.Watch the webinar or read the presentation to find out what our team of crack thought-leaders and analysts forecasted for what is surely to be the biggest year in cannabis to date!

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Video Transcription

Roy Bingham:Hi everybody, and thank you very much for joining us. Now the first slide here is a little bit of a look back at what we said a year ago. It’s a little bit risky, isn’t it, to do that? But this is what we said would be the important trends for 2018.

We said that consumers would drive product evolution, and drive R&D and product proliferation, and sure enough, of course, that’s been a very, very important factor over 2018. So, we gave ourselves a smiley face for predicting the consumer impact on product proliferation. Affordability arrives, we said prices would decline, and prices at the consumer level have declined in many states and in many categories. Flower has declined in almost all states except California, in consumer prices. Concentrates, and we’ll see a little bit more of this later, have declined slightly in some states. Edibles on the whole have not declined very much. So, we didn’t give ourselves a full smiley face. This is a trend of course to watch for the future.Brands taking market share, we’re seeing that coming through the GreenEdge data comprehensive search in branded products in general, and in specific brands as you might expect, as brands start to resonate with consumers, and consumers of course take comfort from brands that connote trust and consistency, for example. Another trend to watch for the future.The best brands will offer new product lines. That’s certainly been the case, that many brands that started off with one specific type of concentrate or one specific type of edible have broadened out and are offering multiple different product lines, as well. So, a couple of smiley faces there. Then in a novel newbie, the new consumers, an important sub category of consumers that don’t yet represent a large volume of sales but are driving change, they are not all together satisfied with the types of products that were being offered, and companies are adapting to this message with new products. Of course, this is all part of a trend towards if you like going beyond the bong, so alternative delivery systems being important in that way, as well, and we’re seeing that with the emergence of sublingual products, tinctures, different kinds of edibles, and of course the very rapid growth of vaporizer products over this last couple of years.We’re also seeing the emergence of products that are designed for a specific purpose, a particular application like sleep or energy, for example. That has been a phenomenal trend over the last year, as has been micro-dosing. So, edibles with less whollup as we say, and I’m sure many of you have noticed the emergence of those 2.5 milligram products, for example, and low-dose teas and powders, for example, as well.We’ve also seen many people marketing for specific mood effects, as well. So, we’re getting some smiley faces here, we actually gave ourselves about a nine-and-a-half here, because we’re also seeing these affluent consumers who are now supporting the emerging premium brands that are also a relatively new phenomenon. So those are the things that we said last year. Let’s go forward and talk about what we are expecting to see this year.

First of all, of course, this is a global phenomenon, and we are seeing the end of prohibition around the world, and it’s in fact even surprising us the pace and momentum of change that is taking place outside the United States as well.

Of course, inside the United States 2018 was a big year. There were decisions made with regard to adults and medical use in several states, and of course the emergence of adult use in Massachusetts, in California, of course, at the very beginning of 2018 we almost forget because it seems like it’s so long ago, but it’s actually only 13 months ago. Rapid growth of medical use in Arizona of course, as well. So, 2018, the legalization decision for Michigan. Michigan’s going to be a very important state because of the large population that is going to come on stream with adult use as soon as they’ve got the regulations in place.

Now, the industry itself has grown at a 38% compound growth over the last four years to a level of about $12 billion. As you can see, the rates of growth in 2018 declined a little. We were looking at 38, 39% up to there. That decline, in part, is attributable to slower regulatory approval for California, and California having a bit more of a struggle in coming online in 2018, as well as a little slower roll out in Massachusetts, then might’ve been expected. And also, in Canada where the market got going in the middle of October, of course, the adult-use market.

But nonetheless, very rapid growth, and in fact we’re expecting the market to grow even more rapidly in 2019, and bounce back up to that 39% level as we’re seeing compound growth of 26%, taking us to a $32 billion legal global market in 2022. That market excludes pharmaceuticals, and it’s not including cannabinoid products outside of the legal licensed channels, which we’ll talk about later. It’s obviously a very important and growing market opportunity for many people in this industry.

Moving on to the next slide, you can see that the USA will continue to be the world’s largest market, a $22 billion market by 2022. Canada, of course, is going to be important. It’s a $6 billion market by 2022, and the rest of the world, still relatively small, at about $4 billion by 2022. The United States is still a huge opportunity for everyone.

And as we can see on the next slide, it’s no longer a western state phenomenon. Those top six states in the West do account for about 2/3 of 2018 sales, so that’s Washington, Oregon, California, Nevada, Arizona, and Colorado. But obviously there are major develops coming along now in Florida, Massachusetts, I mentioned Michigan earlier. Obviously, this regulatory trends happening in New York and New Jersey and many other states which are creating opportunity for great growth in the industry.So legal Cannabis, of course, is evolving.

Many of you will be familiar with the categories within the industry, between flower, concentrates, edibles, pre-rolled product, so pre-rolled joints, and topicals, for example. And we all know that if you go back about four years ago flower was the very vast majority of the industry at about 70% in this chart, for example, in Colorado. And now flower is only about 40 to 43% of the market, and it’s taking a declining market share, even though it’s grown. And why is that? That’s really because of the growth of concentrates, and then followed up by the growth of edibles. But concentrates have grown dramatically to represent, in most markets, around 30% of total sales.And of course, an important point to emphasize there is that concentrates, edibles, topicals, are all branded products. Most pre-rolled product is branded as well. So, you’re seeing a normalization of this industry from private label flower, to branded products.

We can see that in the growth of the consumable cannabis categories, here we’re showing that in 2017 it was about 50% flower, and we are projecting that by 2022 flower and concentrates will be neck and neck with about 36% of the market each. And of course, that will be rounded out with edibles representing about 14% of the market, pre-rolled and topicals and other products with a similar market share.

Here you can see, therefore, that there’s going to be spectacular growth in the concentrates, and in this chart the edibles spending over that period of time, with edibles growing to be a $4 billion market. Just that single category in concentrates, of course, more than double that size.

But as we move to the next chart you can see that, you know, flower’s not dead. Here we’re looking at the demand for cultivation of flower in millions of pounds. So of course, flower is the primary ingredient for all of those edibles and concentrates as well as topicals, and of course also for the product that is going to be sold as flower. Clearly there’s a lot of demand globally for the production of seven million pounds of cannabis by 2022.Jessica Lukas:And Roy, I want to jump in really quickly just to make one more point that flower is not dying. Obviously, that decline we see over time is also attributed to the declining price of flower per gram. One thing to also call out is inhalables are still consumer’s most preferred method, with between 70 to 75% of consumers still preferring inhalables, and about 70% of those people still preferring flower. So important to call out we’re seeing a lot of growth and higher dollar sales or dollar rings in edibles and concentrates, but consumer preference, it still remains strongly focused on the actual flower market.

Roy Bingham:Now we’re going to talk about 2019 cannabis market trends. Rather than list off, you’re looking at a slide which is in no particular order, a number of trends that we think are going to be very important, we’re going to talk in a very broad sense about the rise of social consumption, of beverages. We’ve got to think about the consumer in a different way, as will be illustrated by talking about the aging consumer, and the blurred lines between recreational and medical consumption. We mentioned earlier on the CBD market, and it’s a game changer obviously, as CBD products have become available in multiple channels and multiple formats.We mentioned brands earlier. We’re going to talk a little bit more about the importance of brands, the convenience of shopping in various different ways and different environments is going to be a factor. We talked about low-dose before, and we think that’s a continuing important trend, but maybe the important thing is being in control. Consumers want to feel in control and confident about what they’re consuming. And of course there is still a core consumer, and as Jessica just mentioned we need to think about the impacts of declining prices, and in fact differential declining prices, as she said, between flower versus edibles, concentrates, and topicals.

1. Social Consumption Emerges

Talking first about social consumption. This, we think, is going to be an important change in consumer experience in 2019. It really does mean that the experience of consuming cannabis evolves significantly. Now we’re not exactly sure where that’s going to happen. It’s going to be consumption lounges, as is already allowed in San Francisco for example. It’s likely to be places that took and feel like a coffee shop, or maybe even a pub type of environment. But it’s an important trend. We may actually see, you know, health and wellness consulting really being a catch all type of umbrella for social consumption opportunities as well. It’s obviously a situation that’s going to impact other social consumption behaviors. Of course we think about beverage or alcohol. Also, probably, but to a declining degree, tobacco consumption as well. So it’s a point of intersection with other consumer industries that Jessica’s going to talk about with regard to beverages.And of course, where is it going to happen? Well, you know, there are, as I said, San Francisco, but we’re also expecting changes to take place in Las Vegas. There have been attempts to introduce social consumption opportunities in Denver with some very modest success so far. But we think this is an important trend to pick up on.

As you can see, consumers are already doing this, they’re very ready for it. Based on the data here, we can see that 18% are already consuming in public places. Social occasions are already very important to them in their cannabis consumption.

As I mentioned, whether it’s Las Vegas, San Francisco, Denver, or whether some of the other major cities are going to leapfrog over those early cities, and allow social consumption in a meaningful way, we don’t know. But it’s clearly a game changer, and it’s a game changer for the impact on the beverage alcohol industry, and a number of other products that consumers are consuming at the same time, or in a way that is related to these social occasions.Now over to you, Jessica, to talk about the rise of beverages.

2. The Rise of Beverages

Jessica Lukas:Yes. It’s actually a nice segue into our next trend, and probably not surprising to any of you on the call, if you’re reading any type of news publication there’s a big focus on cannabis beverage, cannabinoid beverages. Both the dispensary regulated channel, but also the general market hemp derived beverages that we’ll see emerge with the passing of the farm bill.It’s important to call out, and we continue to talk about this, and I think everyone’s pretty aware, that beverages are still a very small portion of sales within the regulated legal cannabis market. We’re talking, five percent of edibles netting out to be between one and two percent, depending on the market of total dollar sales. That’s a small portion of the total pie. But why are beverages being talked about a lot? What’s driving that, why are there large companies deciding to go into this space?It’s important to call out that beverages, forever I would say, historically, are a vessel for functional ingredients, because every beverage, in most cases, has a functional purpose. You drink coffee to give you energy or to wake you up, you drink tea to relax or unwind. Alcohol comes into play in terms of letting loose. There are so many different functional aspects of beverages, whether that be a sports drink, an energy drink, coffee, tea, and so on. And consumers are used to consuming beverages for that purpose.So, if we think about cannabinoids as yet another functional ingredient, beverages make sense as a vessel. Have we seen that come to play in the market thus far? Not yet. But it is moving in that direction. In 2018, especially in Colorado and in California, we saw a bit of a dethroning of some of the historical top brands within the beverage space, with beverages in the cannabis market taking over that are more consumer-centric, and an understanding of need states and occasions. We’ll continue to see that transpire in 2019.

To show you that visually, as I mentioned, beverage is a very small portion of the total edible sales. We’re talking about five percent across all markets we track. Colorado right now is the most mature, with about seven percent. It’s important to call out that beverage category includes carbonated drinks, noncarbonated drinks, the cannabis beers and wines we’re starting to see evolve, shots, think about Five Hour Energy-type cannabis products. It also includes water soluble liquids, and water-soluble powders. So, products that people are mixing in on their own with their own beverages. That’s actually a very large growing segment of cannabis beverages. Again, and we’ll talk about it in a handful of trends, this desire to have control over the experience, consistency, trust dialed, that component that you own the actual mixing of the product into your beverages gives a bit more control. I know we’re definitely seeing consumers picking up on that.While small, obviously we are projecting that the market share for beverages becomes larger and larger within edibles with a 2022 estimate. Within dispensaries only of about $375 million.If we break this out further, purposely just giving you a high-level view of this, these are our projections, they are preliminary. We’re working through finalizing these in the coming months. But as we think about total beverages, we cannot look at cannabis beverages as only the regulated dispensary channel, so we have to evaluate also the hemp derived CBD or total cannabinoid market. So really excluding the dispensary channel, the beverages we might see in food, drug, mass convenience, food service, and so on. And we’re anticipating by 2022 that this beverage opportunity being about $1 billion. Again, small today, growing, and as we think about the channels expanding beyond dispensaries, cannabinoid beverages have a big play in the marketplace.

3. The Aging Consumer

Roy Bingham:Thank you. And that’s probably only because I am a boomer, which always surprises me, because I feel I’m so young and full of energy. But I am just barely a boomer, and so I think I can talk a little bit about the aging consumer.

However, I think it’s really important for us to emphasize, that we have to stop putting consumers into neat little boxes, and just making sort of simplistic assumptions. You know, “Oh, because they’re boomers, they’re going to be more interested in pain management”, for example. That might be a factor, but let’s remember that boomers are really becoming reeducated about cannabis in many cases. They have been consumers 20, 30, 40 years ago in some cases. And they’re comfortable with the idea of how they consumed back then, which was rolling themselves a joint. Inhalables are sort of a nostalgic experience for many boomers.They are, of course, getting very interested in and comfortable with topicals for pain relief, for example, and edibles as well as an alternative form of consumption. And they are interested both in social and recreational consumption, as well as medical consumption, as well.

And of course in some cases they may be replacing consumption of Rx and OTC products, as well. It’s not a simplistic picture, but the emergence of the boomer as a group, but not necessarily a definable sub category of consumers within the industry is important. In fact, what we’re going to have to do is look at the behaviors, attitudes, and psychographics of consumers, rather than just their demographics. But clearly, this is an important part of the evolution of the cannabis industry.Jessica Lukas:So quickly, just walking through some of the data points, and Roy summarized this, but we’re seeing about 70% of boomer consumers consuming for health and medical reasons. That is statistically greater than the average cannabis consumers. They are significantly more medically motivated, significantly more likely to consume to replace pharma and OTC, and significantly more likely to want to ease aches and pains.

But as Roy mentioned, and we’ll continue to push on this, 60% of these people also consume for social and recreational reasons, so we cannot ignore the fact that they also want to relax, unwind, and have fun. I’ll call out the have fun, because I find it interesting. Boomers, more than any other consumer groups are willing to say they’re consuming to have fun. And we have to keep that in mind, again, as Roy mentioned. Getting beyond demographics into attitudes, beliefs and behaviors is much more telling in how people behave, and the types of products that they want to consume over time. And also, the interaction and overlap in pairing with other consumer products out there.Really quickly, before we jump into the next one, I do want to call out another substantial and significant group that we’re doing a deep dive assessment on are consumers who are aging into a world where cannabis is legal, so turning 21, in the U.S. specifically, but also looking at the Canadian population, too, turning 18 and 19. But what happens when you age into a world where both alcohol and cannabis are legal to you? Not only how does that impact the interaction between alcohol and cannabis, but how does that change perceptions, and beliefs, and behaviors, and stigmas, and just general consumption patterns? Because the truth, honestly, every day more people age into being legal where cannabis is also legal, every day that group gets bigger and bigger, and the future of where this is going really lies in the attitudes, beliefs, behaviors of those groups. Because, again, every day more people are aging into both alcohol and cannabis being legal, in the U.S. specifically at 21.

4. Rec or Med…It Doesn’t Matter!

All right, let’s rec or med. And maybe it’s rec and/or med, but it’s important to call out, it’s starting to not matter as much. The lines are blurring, and there is multifaceted, multipurpose consumption happening across almost every different consumer group and consumer segment.

So quickly, maybe not surprising to any of you on the call, general population of the U.S. and Canada are in agreement of legal marijuana use. Just to call out the validity of our numbers, we anticipated about 57% passing of Michigan going adult use, and I believe the number ended up being 56%, so pretty close sampling error, confidence, and overall, just being off one percentage point. Further, the majority of the population, looking at greater than 50 to 60% agree marijuana has medical benefits. Again, just general acceptance, and we’re continuing to see that acceptance grow over time.

Roy walked through some of the models up front, kind of our projections. I want to call out the growth in both the U.S., and Canada, and globally is going to be driven by the adult use segment. So continual growth of adult use, new markets coming online, new opportunities. And the answer that is clearly in the size of the general population consumers versus the size of medical card holders in terms of where is this going. Growth and growth in legal cannabis driven by adult use in both the U.S. and in Canada.

When we look at the markets over time, and look where growth is coming from, let’s just focus here on the two green lines, all the way on the left-hand side, January 2014, when Colorado came online, adult use, it took about six months for adult use to meet medical, medical being that bright green line. Since that time adult use continues to grow. Medical relatively flat, but declining more recently. And we’re seeing that both in Colorado and in Oregon. This is the medical channel, so specifically card holders.

But, when there isn’t an adult use market we continue to see medical markets like Arizona, as Roy mentioned earlier, thrive.

But it’s important to call out that the answer is not as clean as the medical channel versus the adult use channel. Because there is a lot of cross consumption going on, depending on the time of the day, the day of the week, the time of the month, you know, the occasion. Consumers are constantly evolving through forms, inhalables, edibles, and topicals, and why they consume. So, it’s a constant evolution where maybe on a Friday night with your significant other it’s a clear unwind, relax, social occasion for edibles, let’s say. A Saturday afternoon after a long run maybe the consumption is more medically focused, and you’re using topicals.But that’s constantly evolving, and we have to understand, again, not putting consumers, or behaviors, or occasions into neat little boxes. There’s a lot of cross consumption, there’s a lot of different reasons why people are consuming. And so just because we’re seeing the medical channel staying flat or declining, it doesn’t mean that consumers aren’t consuming for health or medical reasons, they’re just purchasing via adult use channels. And again, a lot of cross consumption with a substantial portion of consumers consuming for both reasons.

Further, kind of driving home this point is, the more open the markets are, so what you’re looking at here, level five are illicit states through the stages of legalization up to level one being fully adult use medically legal states. As markets open, there’s more products available, more forms available, de-stigmatization, education. What happens is consumers go generally from, as you saw on the first slide, 65% believing that there are medical applications for cannabis, but in a lot of cases they’re thinking of that as the worst-case scenario, cancer, MS, whatever it may be, saying, “Yeah, there are medical applications for those situations.”As you evolve through the stages of legalization and get to a fully adult use medical legal state, which is level one here, you see the merging of these two lines. Because what happens is people realize, oh, there is also health and medical applications for me. Whether that be pain, headaches, menstrual cramps, there’s a lot of different acceptance of that medical application that’s driving these two pieces to kind of merge together. It’s not fair to look at adult use or rec sales versus medical sales. We have to think about why people are consuming, what they’re consuming, because in most cases there’s a lot of different functions they’re looking for.

And just to further that point, even among pain management consumers, so consumers who tell us they consumer cannabis for pain management, almost 75% of those people still consumer for recreational and social purposes. So again, multifaceted consumption is very evident, and we’ll continue to see that evolve per the prior side, again, as education gets greater and greater there’s greater acceptance to saying, “I used to consume via inhalables for social and recreational purposes, and I now understand how I can consume other forms of cannabis, or even inhalables for health, wellness, and medical reasons.”

We have to call out the fact that it’s not just about THC, it’s also CBD. Whether that be in the dispensaries or general market hemp derived CBD, that is clearly our next trend.

5. The Cannabinoid: CBDs

Calling the cannabinoid for now as it’s the hyper focus, what does this mean and where is this going, both in the dispensary channel and the general market.

And if we break down who are the people who are consuming these types ofproducts, these are the non-psychoactive at least hemp CBD products. Stillrelatively small numbers. 13% in the U.S., 10% in Canada. Important to call outthose that marijuana cannabis consumers are more likely to be purchasing andconsuming these non-psychoactive hemp products. A lot of that is driven bygreater education and understanding of cannabinoids product forms, and whatthey might mean for them. Again, really important to call out that even ifwe’re talking the hemp derived CBD market that’s going to evolve drasticallywith the passing of the farm bill, we have to consider the fact that thegeneral population is largely uneducated on this conversation of CBD and THC,and that a lot of more education happens among those who are already visitingdispensaries and already consuming cannabis.So, this component of the regulated market cannot be ignored as we consider the opportunity in the general market. And that goes vice versa, where right now we talk a lot about the legal regulated cannabis channel being dispensaries, as we see this total hemp drive cannabinoid market open up over the next few years, they become much more entwined, and you have consumers potentially buying different cannabinoid products at the dispensary than what they buy at a convenience store, or a drug store. And we have to understand the total pie of cannabinoid consumers, and the total pie of the cannabinoid market.

To show it in a bit more detail, as we think about these non-psychoactive hemp CBD products currently being purchased, again, by a smaller portion of the population, it’s largely driven by ingestibles. You see that’s almost 55%. These are going to be largely oils and tinctures currently, but seeing some food, pill, supplements, vitamins, and beverages come into play as well. That second biggest category is topicals, and then start seeing some inhalables. Again, these are non-psychoactive general market available CBD hem products.

But when we compared this to what we’re actually seeing in the dispensary channel, so calling out the total size of market within the markets we track, high CBD products represent about 10% of the dollar sales. 10% of dollars sold running through the dispensary channel currently in markets we track are coming from kind of these high CBD products.And interestingly, maybe not surprisingly, over the last year pretty much every major edible brand has at least one high CBD SKU. When we think about that portion of the pie, and we break it down into the categories that are being sold, this category mix looks very different among that 10% of dollar sales, then when we look at the total pie, where you start seeing ingestibles or edibles being over 50% of high CBD product sales in dispensaries. A big place, though, with concentrates, especially vape, and then you see topicals here. Again, thinking about the general market hemp derived CBD products that are going to become available, right now the dispensary channel is truly a lead indicator, not only of consumer acceptance, but also product forms, and product availability of what we’re going to see transpire over the next year or two as we think about these cannabinoid CBD specifically products being available in food, drug, mass convenience, and so on.

But it’s important to call out that we all need to consider the fact that consumer education is needed, that we have to consider how can the general average consumer become educated on cannabinoids and understand the language being used on different products, and the labeling of hemp seed oil versus hemp extract, or whole hemp extract, or CBD oil. I mean the list goes on and on in terms of the terminology we’re seeing. And that is not helping the education that needs to happen for consumers. With 70%, almost 70%, both in the U.S. and Canada being confused, not understanding the differences of CBD or THC, or even if there are differences. And further, a broad belief that any hemp product will cause some sort of psychoactive effect. Even among cannabis consumers in fully adult use legal states, the level of confusion is still around 40%. Again, a lot of confusion, therefore a lot of consumer education is needed.

6. Brand Further Solidified

Roy Bingham:All right, thank you very much Jessica. And interesting to see that we in the United States slightly more ignorant than our neighbors in Canada on that particular topic. The next one is just to talk about how brands have further solidified and will continue to do so during 2019.

If we go to the next slide, please, you will see the tremendous growth there from only 19% of sales being branded in 2014 to 44% in 2018. In fact, in some states we’re looking at approximately 50% of products being branded because of course certain categories.

and if we go to the next slide, we can see one, are almost completely branded. In Colorado 96% of all edible sales are branded sales.

Looking at that particular category, here you can see the top five Colorado edible brands, and you can see that the number one brand now has got to approaching 25% market share, while the other significant players have struggled a bit relatively. But you can see that there some brands are taking the express route to the top, and we’ve seen emerging winners in most of the markets that we cover now.

And if we go to the next slide you can see that the battle is on, as I’ve just indicated. In Q3 of 2015, though, in the case of concentrates in Colorado, the top five had 61% of the market. There was one very, very dominate player in that situation. And the top five had less of the share. So, it’s gone in reverse, it’s not a universal rule that the markets will all concentrate. They may all concentrate over a long period of time, but here you can see over three years they did not because there was a lot of more competition, and the number one player lost a significant amount of ground relative to its competitors.

7. Convenience is King

Jessica Lukas:All right. Let’s talk convenience. I think it’s important to call out when we talk convenience we’re talking about the convenience of purchasing, but also the convenience of consuming, because both are important to the consumer of today, and we’ll continue to see those grow in importance as we go beyond. Right now, 32% of the 21+ population consuming in fully legal states. That number is growing overtime as new consumers come online.

First off, location is key when choosing a dispensary. So, assessing what are the drivers of choosing where consumers shop? The number two driver with 67% putting a lot of stake in this. Not surprising, because this is how we shop across all categories. Where it’s located matters to us. Whether that’s close to our home or our work, or in route between the two, location is key. And we continue to see that play out.Really quickly to call out, because we’ll get to it next, buttrustworthy is number one. So, going back to the willingness to go out of theway to find a trustworthy experience, also important to call out. But right now,we’re just going to talk about convenience and the need to consider that bothin the location, but also in the product form.

50% of consumers are largely influenced by the convenience of the consumption form when choosing a product, so when they’re actually purchasing. And this, the convenience of the consumption form is a top five influencer, or top five driver of product choice. Thus, it’s not surprising to see dollar sales continue to grow in categories that have a convenient form to consumers. Vape up 67% year-over-year, in the markets we track. I will call out this is excluding California because given the difference in the market in 2017 versus 2018, we can’t look at a true trend, and then also you had edibles growing at about 30%.So, seeing the convenience of the form, the occasion driving the method people are consuming and we’re seeing that play out both in where they shop, but also once they’re shopping, what they’re purchasing.

And then we can’t ignore the ultimate convenience, right. Product brought right to us. I like to say, there are general market trends out there, there’s a lot of general market trends, and we can talk about home delivery. Whether that be food being delivered directly to your home, your groceries, Amazon Prime, the list goes on and on. There are a lot of general market trends that are mirrored in the cannabis industry, and this is one of them. Delivery matters, and will continue to matter, across all industries, and we see that mattering as well in cannabis. Delivery in California and potentially other markets, as well as mail order in Canada. We have to consider that as an ultimate convenience for the consumer. So just something to consider. Again, convenience matters. Convenience is king. And that exists across all consumer industries. Again, it’s not surprising to see consumption, as well as purchasing be driven by consumers desire for their lives to be convenient and easy.

8. Growth of Consistent, Low Dose, Dialed

To the point I made on trustworthy. Let’s talk about consumers desire to be in control, and our anticipation of a growth in the consistent, low-dose, dialed products. I think there was a couple of questions that popped up. I haven’t been able to keep a close eye, but I did see this pop up. We have to include the conversation of faster onset, as we think about consumers feeling in control. They want to understand the experience they’re going to have, and they want their expectations to be met. And they want to know when the buy products, again, that they’re going to have a consistent experience. A lot of people think of this as newer consumers desires. It’s really all consumers desire this. They want to know what type of experience they’re going to have, and they’re driven to products that they’re familiar with because of this desire to have a trusted experience.

Let’s talk first about some of the low-dose, micro-dose, 33% of ediblesconsumers prefer low-dose products. By preferring low-dose products right now,we’re talking about less than 10 milligrams. We have that broken down bymilligram dosage. When we look at the dollar sales and what we’ve seen as wetrack what is selling at the product level, it’s worth calling outmicro-dosing, which we’re quoting as two-and-a-half milligrams or less, havegrown 108% in terms of dollar sales year-over-year. Low-dose, which we’requalifying as greater than 2.5 and less than 10, have grown 71%. And just tocall out, edibles in total have grown 28%. 28% is still a very strong growthrate, but when you compare it to these other sub-categories of the ediblemarket, it’s staggering that consumers are telling us they prefer theseproducts, and the sales data is showing you they are purchasing these products.There are more products available that are lower, or micro-dose, and consumersare buying them.Further, important to call out, and this goes back to the CBD conversation, when we talk CBD, we’re not just talking hemp derived, we’re talking regulated dispensary channel as well, 40% of edible consumers have chosen products based on CBD content. Of these, almost 30% prefer a 10:1 CBD:THC ratio or higher. A predominantly CBD product. And again, seeing that play out in our dollar sales in the markets we track with high CBD products up 67% year-over-year.Again, thinking about low-dose, thinking about micro-dose, thinkingabout faster onset, thinking about high CBD products, again drives back toconsumers wanting to have control over the experience.

We continue to see that play out, again, both among current consumers, new consumers experience, consumers and non-consumers. So consistency and trust matter. They want to have that good experience.Among the average consumer, one-third want manufacturers to do a betterjob of making product dosages consistent. Additionally, 40%, and this number’sgrowing, wish more products were labeled to tell them what type of effectthey’re going to have so that they can set the right expectations, they canpurchase the right product. And even among non-consumers, when we ask them,”Why don’t they consume?” The top two reasons: it does not fit mylifestyle, and I don’t like how it makes me feel. As a brand marketer, andthinking about what this means, and you start unpacking it, these consumerswant to trust that they will have a good experience, and maybe they’ve had badpast experiences, and maybe they don’t see that it fits their lifestyle becausethey don’t trust it. They don’t trust the consistency, and they don’t knowenough. And to me, as a marketer, these are two good hurdles to have fornon-consumers. And these are non-consumers who are open to consuming in thefuture, because there is communication and there is education that can be doneto make consumers understand that they can be in control of the experience.

Further, familiarity matters. Again, wanting to have a good experience. What drives the products they purchase? Well, they’re strongly influenced by recommendations of people they trust are familiarity with products. 60% often times purchase something because they’ve used it before, therefore, they know the experience they’re going to have, and how they’re going to feel. About almost 50% look for friend and family recommendations. Again, familiarity and trust. And then also budtenders come into play, not surprising here. So understanding what is recommended by somebody that people trust, drives their product choice.Roy mentioned it earlier, but the growth of brands historically across all consumer categories stand for something and consumers understand what they stand for, and therefore, brands do provide a bit of trust and consistency in expectations. So continuing to see this play out. Again, very staggering growth rates 2018 to 2017, and we continue to see this moving forward with low-dose, micro-dose, mood and effect, faster onset, more control, like I mentioned, forms that consumers can mix it themselves. The water soluble powders and liquids. That’s working because consumers feel like they’re in control of the experience.

9. Refocus on the Core

We’ll jump to the next trend. Discerning tastes. While we talk about all the growth of the industry, becoming more mainstream, consolidation, brands standing for something and being consistent and trustworthy, this is I think less of a trend, and more of a reminder. Don’t forget about the core. There’s a group of core consumers in any consumer industry, whether it’s outdoor activities, beverage, alcohol, cannabis, that are lead indicators of where things are going. They’re early adaptors, and they care about things that maybe the mainstream consumer doesn’t. We have to remember these people exist, and we have to remember that they still want some different things.

As we think about these people they’re influencers, early adaptors, lead indicators of where the market’s going. And again, as consolidation, and evolution, and growth continues in the marketplace, these people can’t be ignored. They’re willing to spend more for quality. They keep up with the latest technology, they care that products are locally grown, and they prefer local, natural, organic and social interested brands. This is just how they behave generally. This has nothing to do with their cannabis purchasing or consumption.

Speaking more specific to cannabis, these people are more likely to be influenced by things like processing method, terpenes, or terpene content, additional cannabinoids, so the conversation beyond THC and CBD. They understand cannabinoids, they understand the terpene language, and they’re looking for something different. Growing methods, where it’s grown, indoor, outdoor, sun grown, whether or not it’s natural/organic, the farm it comes from, the packaging and the sophistication of the packaging, and glass and metal packaging to preserve their products longer. It’s just again, a reminder that these people exist and as the percent of the population consuming increases, and as we try to provide products that make sense to the average consumer, again, just a reminder not to forget about these people as the market continues to grow.

10. Declining Prices

I’m going to talk about declining prices. Thank you, Jessica. As you probably are well aware, despite all of what we’ve just said, it is important to remember that price is very important to consumers.

If we go to the next slide, just to reemphasize that, price is still the #1 driver of consumer product choice. It’s self-evident to many of us, but it’s something that we can easily forget. What has happened to prices in the consumer market over the last couple of years.

Here you can see that Oregon, Oregon over this period of time from January 2016 to the end of 2018, saw a more than doubling of its sale of flower, a more than doubling by revenue, but as you can see, the actual average price has more than halved. So what we’re talking about here is actually a 4x increase in volume during this period of time, as the prices have fallen so significantly.

If we look though at the other areas of cannabinoid sales, and we thinkabout what’s happened in concentrates, for example, here we can look at Colorado, and you can see that while prices have declined over the similar period, they have not declined as much. That one says down two percent, that’sa typo, sorry about that. It should say 20% over that three-year period.Of course input costs, the cost of wholesale flower have decreased during that period, therefore concentrate manufacturers are seeing an improved margin over this period of time.

And if we move to the next slide, we’re going have a look at what’s happened in California where, in fact we’ve seen a little bit of a reversal of this trend over the last two years. Edibles, which we’ve chosen here, have actually increased in average retail price from $14 to $21. And, as you can see, they actually bounced with the introduction of the new legal regulatory environment, both in January, they increased, then again in July when the restrictions and requirements were imposed.We’re looking at all of this both in the context of a generally declining flower price environment, and a slight decline in concentrates and edibles, but we’re not seeing that yet in California, the largest market, but it is likely that things will regularize and the high prices in California will start to come down in the future.

11. Bonus Point: Consolidation

Now we’re going to just talk about, and it’s a bonus point. It’s our number 11 point, is just one of those not obvious things that we feel like we ought to say, okay, which is that consolidation is happening rapidly in this industry. It’s industry insiders combining with each other. It is outsiders coming in and making investments into or purchasing companies in the industry, and bringing additional capital, a lot of capital coming in from Canada, of course. Bringing in additional capabilities, the ability to move faster, bigger, stronger. A lot of activity as we know from the beverage alcohol sector, the tobacco sector, pharmaceutical companies paying greater attention to what’s happening in the cannabis industry as well, and the capital markets being very open and having great enthusiasm for this industry as it grows.That is going to drive significant change in consumer experience with the emergence of stronger brands with a multi-state operators establishing brand awareness in many states and building out their infrastructure and their distribution capabilities. We’re going see markets emerging that look quite different from the markets that we had got used to out in the West, and we’re going see significant change in the markets in the West as well.