For nearly two decades, we haven’t seen growth anywhere near what we’re seeing in the marijuana sector.
You have to go back to the early 2000s at the beginning of the internet to see the same compound annual growth this sector is seeing today.
But underneath that growth, a sea change is underway. The growth is starting to evolve from a mad dash to a far more calculated approach.
The signs of a maturing market are myriad.
Branding is taking off as an important way to distinguish between options, and storefronts are being renovated or relocating to posh neighborhoods.
Just look at this picture from Farma, which was recently named the best dispensary in Oregon:
Top talent is being recruited into what were once small businesses, which in turn are being snapped up as the industry is rapidly consolidating wherever possible.
Sales and revenue are skyrocketing, and new potential is being tapped faster and faster as businesses are finding innovative ways to fund expansion and capture market share.
But what I’d like to draw attention to is another sign… one that may look ominous but is actually good for smart investors.
Falling Prices
“Wholesale marijuana prices declined in 2016 from $2,500 to $1,000 per pound, with some dispensaries offering recreational ounces as low as $65,” said Brian Shapiro, Chief Executive Officer of CannaSaver.com, a Denver-based internet marketing firm.
Here is how it looks in a chart from BDS Analytics:
And here is why this is a good thing…
The number of growers has hit the point where they are competing for business in a rapidly maturing market.
Douglas Brown of Contact High Communications recently told Forbes that it wasn’t existing cultivators that tipped the market, but rather new and large entrants to the growing side. “At some point — and we are probably there now — flower becomes a commodity, like soybeans or corn. And then only the biggest players make any money selling it. Margins are thin, but they grow a lot of flower.”
Businesses are increasingly looking to efficiency of capital and scale to provide an advantage in the market. In turn, the companies that can survive and thrive in this market will go on to capture the immense growth that is coming.
Every major company you can think of — from high-tech Apple to basic retailer Wal-Mart, from industrial GE to futuristic Tesla — was created in this kind of crucible.
All About the Map
Marijuana sales are growing fast, but what is coming in just a few short years will dwarf them.
From $6.7 billion last year, the market is expected to grow 30% this year. Then 45% next year.
By 2020, estimates range from $30 billion to $44 billion.
How is that possible? It’s a unique kind of growth we haven’t seen in any sector in generations.
Right now, 29 states and Washington, D.C. have legalized marijuana in some capacity.
Seven more states are looking to follow suit this year.
As more and more states are added to the map where legalization has happened, huge new markets open up, and the handful of companies with a small initial advantage will rapidly come to dominate them.
The problem is figuring out which companies can pull this off. Falling cultivation prices are a good thing for investors in this regard.
It helps separate the wheat from the chaff. The companies that are going to move into these new markets as states legalize will hit the ground running, with efficient bottom lines and tried-and-true best practices.
Make no mistake about it. The early years of the marijuana sector are effectively over.
For investors with access to the best research, every new state added to this map creates new opportunities.
And thanks to falling prices and great efficiency, these opportunities will present larger and faster profits. What could be better?
