Opportunities in the Evolving Cannabis Consumption Market

Few people have managed to avoid noticing the increasing popularity of cannabis consumption. However, if you walk down the street and catch a whiff of that grassy, pungent smell, you are witnessing a dying breed of cannabis users. While more people consume cannabis, they are increasingly shifting away from the raw flower. For investors in the space, the changing cannabis consumption landscape opens challenges and opportunities in product creation, marketing, and targeting new consumer groups.

Cannabis is Becoming a Commodity

While cannabis is famously a weed, its connoisseurs will let you know if you get your strains mixed up. Different strains have varying amounts of THC, the cannabinoid that gets you high, as well as other non-psychoactive cannabinoids and terpenes, several of which have been found to have beneficial effects on inflammation, stress, and more. Cannabis strains all have their own individual look, smell, taste, and experience.

Cannabis is becoming increasingly commoditized, however, and consumption is moving farther away from the raw flower. A growing segment of consumer products are infused with THC and other cannabinoids, thus removing the experience of a flower strain and its characteristic cannabinoid and terpene combinations. Cultivating cannabis is increasingly a large-scale commercial affair, with the size of cannabis “grows” limited in part by their market size because the United States does not allow interstate commerce of the crop.

Many larger operations belong to so-called multi-state operators — companies structured to operate in multiple states. If you have ever invested in a cannabis exchange-traded fund (ETF), these are the companies you bought. Because of their wide reach, their market capitalization is large enough to make it into cannabis ETFs. Yet, no cannabis company can ship across state lines. What you grow in a state is also what you sell in that state.

More People in the US Now Consume Cannabis Than Alcohol

The commoditization of cannabis parallels an important trend that sees cannabis use spreading across age groups and social spheres. More cannabis consumers are now college kids and middle-aged women, as opposed to your traditional “potheads.” We see more distilled and infused products, such as gummies, drinks, and vapes, and less flower for examining, grinding, and smoking.

Surveys of consumption in the United States reveal that cannabis consumption has surpassed alcohol drinking. This has long been the case among younger cohorts. Among Millennials and Gen Zs, alcohol consumption has been on a slow and steady decline while cannabis use has been increasing. This is partly due to a realization of the damage that alcohol does, and partly because of the softer effect of cannabis. Cannabis is now recognized as a more benign drug than alcohol and has lost the heavy stigma it previously carried.

Growing Product Categories

For investors, a wider demographic of cannabis use opens a field of new investment opportunities. Product categories are broadening, creating opportunities for expanding branding, and marketing.

Smoking is increasingly recognized as unhealthy and unappealing. Familiar products that do not require inhalation such as chocolates, cookies, and drinks are becoming more popular. There are powders and concentrates for making cannabis cocktails. Edibles such as gummies and drinks are particularly popular among consumers aged 55 and over, according to a report by New Frontier (2023). The same report also finds that those aged 18 to 24 are the least likely to smoke cannabis exclusively, pointing to the trend of a new generation of cannabis users replacing alcohol and not wanting to smoke. Smoking in some form, flower or vape, is still the dominant form of cannabis consumption, but the trend toward other types of products creates opportunities for new entrants to claim niche spaces.

There is an increasing popularity in lower-dose products, according to New Frontier. Their consumer report notes a decrease in popularity and frequency of use of blunts, bongs, and water pipes, as well as dabbing and concentrates. Meanwhile, we are seeing an increasing use of edibles, which is now the most frequently used form of cannabis. Also rising are vapes, drinks, topicals, and to some extent tinctures.

While cannabis has become increasingly common at student parties, we anticipate that it will eventually make its way into bars and other social settings. Twelve states currently allow cannabis consumption lounges in some form. Some states allow for purchase of cannabis on site, while in other states, lounges can only offer spaces for consumption. While lounges still mostly come in the form of simple cafes, this category of hospitality establishments may well soon evolve into pleasant speakeasies and dance clubs. This field is wide open for entrepreneurs.

New Consumer Groups

As cannabis becomes more mainstream, new target groups are emerging. As mentioned, young people are dominant users of cannabis. But the fastest growing group of cannabis users is senior citizens over the age of 65. Another important and quickly growing consumer group is middle-aged women, using it to alleviate symptoms of menopause. Pain relief and sleep aid are common applications of cannabis for all cohorts but especially for these groups.

And as with any health remedy, whatever humans use on themselves they also provide their pets, making the pet market an important focus for investors in cannabis. Understanding how to reach these new consumer groups offers great opportunities for novel branding and product categories.

Investment Opportunities

As weed becomes increasingly commoditized, opportunities emerge outside crop cultivation. Prices of flower are falling in most states, making it increasingly attractive to be a buyer of biomass instead of its producer. By contrast, on an international level, markets outside the United States are increasingly integrated via cannabis trade, opening opportunities to grow cannabis in low-cost and climate-appropriate places for export, with southern Africa and Colombia attracting a growing stream of investments.

Cannabis remains underdeveloped as a consumer-packaged goods (CPG) category. Most packaging remains rudimentary and brand building is still in its infancy. This may well be due to entrepreneurs in cannabis not entering from a CPG angle but out of a passion for the plant and its health benefits. While this infuses the industry with passion and camaraderie, it also brings less professionalism than in many other industries. Investors and professionals in marketing and CPG are thus presented with a broad range of opportunities.

There is also much invention to be had in the field of product development. It seems no state needs another sweet and chewy gummy or another pre-roll. While these remain highly popular categories, we anticipate more companies to explore better-tasting beverages, healthier edibles, and unanticipated products from creative cannabis innovators.