January 12, 2017: 3:15 PM CT
2016 was a transformational year for the marijuana industry. Four new states legalized adult recreational marijuana use, another four legalized medical marijuana and legal pot sales in North American hit nearly $7 billion. Building on that momentum, the cannabis sector is poised to see major growth in 2017.
Extract spoke with cannabis industry insiders to get a better sense of key market trends and predictions to watch in 2017.
1. Marijuana banking
Despite massive growth in 2015 and 2016, many marijuana businesses can’t access traditional banking and financial services, which means a bulk of the industry is still operating on a cash-only basis. High profile lawmakers like Senators Kirsten Gillibrand (D-NY), Jeff Merkley (D-OR), Bernie Sanders (I-VT), Elizabeth Warren (D-MA) and Cory Booker (D-NJ) are already pushing to reform federal banking guidelines on this issue, and industry members are optimistic that cannabis banking services will open up in 2017.
“The banking services issues for our industry will begin to be addressed, and there may even be a reasonable resolution in 2017,” Rob Fess, director of marketing at the online wholesale cannabis marketplace Tradiv, told Extract. “There is money on the table – tax revenue, processing fees, cash not being reported – someone in power is going to recognize this, and will make the necessary effort to get a piece of it.”
2. Industry consolidation
Due to legal and financial risks associated with cannabis being illegal at the federal level, many state-legal pot businesses have been able to successfully operate at smaller scales for some time. But as deep-pocketed investors enter the legal pot landscape and competition grows, smaller operations are more likely to merge or fold into larger companies.
“Many Wall Street types are looking to get into the pot business, and I think we’re going to start seeing a lot of smaller businesses selling to the suits,” Harris Shapiro, publisher of the financial market newsletters Focused Stock Trader and Cannabis Stock Picks, told Extract. “The suits are there. Wall Street is quietly in the background, waiting for the federal OK.”
3. Brand emergence
As the investment community becomes increasingly eager to finance cannabis brands, the market will grow at a faster pace and will likely see national brand leaders begin to emerge.
“Typically, an emerging industry will hit an efficiency threshold, which results in consolidation and brand emergence,” Keegan Peterson, CEO of the cannabis-industry workforce management platform Wurk, told Extract. “We have already witnessed this on a smaller scale in 2016. I believe in 2017 we will start to see this happen on a much larger scale resulting in brands – both product and retail establishments – being available in every legal market.”
4. Falling pot prices
With eight new states, including California, legalizing either recreational or medical cannabis in 2016, the number of cannabis cultivators and volume of cultivation space will likely expand significantly in 2017, Tradiv marketing director Rob Fess predicts. And as cultivators push more product out to market, pot prices will fall in many locations.
“The number of cultivators and the volume of cultivation space, where not limited by regulation, will expand to meet the demand as the newly legal states ready for their ‘green rush,’” Fess told Extract. “Eventually, with all the new entrants into the market or existing participants increasing their output, supply will become greater than demand and prices will begin to fall. Tradiv saw this happen in Colorado.”
5. International markets
A big chunk of growth in the legal pot sector will take place outside the U.S. in 2017. Germany’s health minister announced last year that the country plans to legalize medical marijuana at the federal level in 2017. And Canada, which has already legalized medical cannabis at the federal level, is planning to legalize marijuana nationwide for adult recreational use in 2017.
“I think people need to realize that the U.S. isn’t necessarily a global leader in this sector,” Alan Brochstein, founding partner at New Cannabis Ventures and founder at 420 Investor, told Extract. “I’ve been pointing people toward Canada’s investment market for a while. Cannabis is fertile ground in Canada, and that’s better reflected in their public markets.”
6. Ancillary business boom
As the legal cannabis market expands in 2017, so too will the market for ancillary products and services. In fact, the growth of businesses that deal with cannabis industry and consumer needs, but don’t necessarily touch the plant, may surge far past that of cannabis proper.
“Most of the market potential is going to be in the ancillary businesses because you don’t necessarily have to pay millions of dollars to get a compliant grow, and things along those lines,” Aaron Smith, executive director of the National Cannabis Industry Association, told Extract. “And there are so many different areas. Basically, any product or service that exists in any other industry, there’s going to be a need for it in cannabis.”
7. Medical vs. recreational
U.S. medical and recreational markets may begin to noticeably diverge in 2017, particularly when it comes to branding and marketing.
“I see medical heading in a different direction than recreational pot,” Derek Peterson, CEO of the cannabis-focused agriculture company Terra Tech, told Extract. “Medical is probably going to be more biotech focused and will look more like the pharmaceutical sector. Recreational adult use marijuana will look more like big alcohol when it comes down to branding and marketing.”
See more photos from the U.S. cannabis industry: