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Cannabis is Exploding in CPG: Is Your Organization Ready? Webinar

Our “Cannabis is Exploding in CPG: Is Your Organization Ready? webinar, which took place on August 27, 2019, was hosted by Jessica Lukas, Vice President, Consumer Insights, BDS Analytics and Larry Levin, Executive Vice President, Market and Shopper Intelligence, IRI.

 

This webinar shared the perceptions and the realities of cannabis adoption and use in the U.S., along with how cannabis is expected to impact the CPG industry going forward.

 

 

 

 

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Video Transcription

 

Larry Levin:

Good afternoon everybody on the east coast, and good morning to people in the central, mountain, and Pacific time zones. It is a great honor to be here and talk about probably the most exciting disruption that we have in the CPG market today. And very, very excited to be sharing the story today with my partner, Jessica Lukas, who’s a VP with BDS Analytics in Boulder, Colorado. Jessica is an Indiana born and bred Hoosier, and she bleeds Indiana red. So it’s going to be a lot of fun to spend time talking today.

 

 

 

 

And the reason that we’re going to talk is really making sure that our industry, your manufacturing companies, your retailers are all ready for this explosion that is legal cannabinoids, understanding what it takes to be ready, who the consumer is, learning from the dispensary. The dispensary is obviously right now the primary outlet for obtaining a lot of this product. But the importance of the dispensary will continue to remain, but other channels are going to be extremely important as we look into the future.

 

And Jessica is going to talk about some predictions that BDS has put together to talk about really a five-time predicted growth in this industry over the next five years. And we’re going to show you an example of the impact of legal cannabis on alcohol in particular. And we’ve got a lot of other stories that we can share throughout the rest of this year and into next year about other categories that are going to be impacted.

And then talk about the impact of retail in states where it’s already legal to sell cannabinoids. Retailers are really getting on and driving the impact, particularly around CBD. And so, the time is right now to be able to capitalize on this. And when we think about this really being a game-changer, cannabis itself is not new. Legal cannabis, both hemp and marijuana, very new, creating a disruption in the market that, frankly, I don’t think any of us have ever seen and probably will never see again.

 

 

Legal cannabis is a game-changer

 

 

When we think about an industry that, in general, is growing at 2% to 3%, if we’re lucky, the opportunities that are in front of us with cannabis is really, again, unfounded. And I think it’s really incumbent on all of us to think about how we exploit these opportunities. The dispensary channel, without a doubt, is the #1 outlet, as we said before. And over the next five years, it’ll continue to be a key outlet. But other outlets will become really important, which makes us, as an organization, as an industry, understand the importance of different channels and the way that we loop in to those different channels.

 

So, without further ado, it is my pleasure to turn the story over to Jessica. And Jessica is going to take us on a journey here from understanding what BDS does, all the way through her view of what’s happening in the market. Jessica, over to you.

 

Jessica Lukas:

 

Yeah, thank you. Before we jump in, just a quick introduction. For those of you who are not familiar with BDS Analytics, we are the cannabinoid strategic partner with IRI. Our focus and objective is to ensure that we are providing essential insights and analytics on the global cannabinoid market.

 

 

BDS Analytics provides insights and analytics on cannabinoid market

 

 

So, as we go through a lot of the data points and the insights in this deck, just think of this as three main key areas. We do have full retail sales tracking for the dispensary channel. So what is selling where, when, at what price point at the product or SKU level? Very similar to what you’re familiar with, with your IRI data. Also, in-depth ongoing trending consumer research. So understanding who are the consumers? Who are non-consumers? And how are they evolving with time? And how do we think about different consumer segments as you consider dispensary THC products all the way to general market CBD products, anything from an inhalable, an edible, and a topical? Who are these people and how are they behaving? And then we have a team of analysts who take all of the proprietary data sets that we’ve built over the last five years and predict where the market is going. What does the future hold? And how do we anticipate this market looking over the next five years in every US state, in every Canadian province, and in over 30+ countries globally?

 

 

CBD is Not Hemp

 

 

So with that, let’s dive in with a little bit of background. I really want to call out that CBD is not hemp. So keep that in mind. Cannabinoids, THC is called cannabinoids. Cannabinoids are chemical compounds found in the cannabis plant. As you can see here, the difference between hemp and marijuana is all about how much THC is found in the plant. And it’s important to think about this. This is a regulatory base, so this is what regulations stand right now in terms of the delineation between hemp and marijuana.

 

So keep this in mind as we’re going through this. We will be as clear as possible, but in some cases, it’s not that clear. CBD can be extracted from both marijuana and hemp. So whether you’re shopping in a dispensary, at a vet, at a salon or spa, at a grocery store, at a drug store, at a mass merchandise store, at a convenience store, you can find CBD products at this point. Some, based on regulations, are marijuana-derived, and those are going to be sold to the dispensary channel. Others are hemp-derived and available in the general market. Really important, and we’ll hammer this throughout this conversation, this delineation is not necessarily how consumers think. It is a stage of where we are in terms of regulation and policy. But again, really important not to consider CBD as equal to hemp, because that is not accurate.

 

 

THC and CBDs are just the beginning

 

 

Further, important to call out that THC and CBD are just the beginning. So as we think about cannabinoids, again, most commonly known THC and CBD, these are extracted from the plant. There is believed to be hundreds of cannabinoids, and we’re really just getting started. Where THC has been well-known for a long time of being a psychoactive or intoxicating response, CBD with the benefits of pain relief, anti-inflammatory, and you start thinking about all of the other applications of cannabis. And it’s important to keep this in mind because we really want you to think bigger than just launching a CBD product or understanding the CBD marketplace because we’re just getting started. So anything from appetite suppressant, actually increasing appetite, and in a lot of other applications, whether it’s pain, sleep, neurological, or mood or behavior, cannabinoids are there as a functional ingredient at this point. And the dispensary channel is truly a leading indicator of where this market is going. We are already tracking in our data products being sold to consumers touting 22 cannabinoids. So important to call out THC and CBD are really just the beginning.

 

 

22% of us population know what cannabinoids are.

 

 

So with that, that was a very quick introduction to cannabinoids. Therefore, it’s not surprising, this is confusing. Most of the population, adults 21-plus, are confused. Only 22% know what cannabinoids are and can articulate that definition. So again, really important to think about consumer education, package labeling, whether people are buying in the dispensary channel or the general market. There’s a lot of confusion around what the products are, what they’re derived from, and what consumers are actually buying and consuming. It’s important to call out, within the dispensary channel, there are a lot of regulations in place to ensure that third-party testing is followed very strictly. And that currently isn’t the case in the general market, but the marketplace is evolving to that situation.

 

 

The effects of CBD or THC

 

 

Further, as we think about this confusion, as we talk to consumers and we ask them their understanding of CBD or THC, really important to call out here that almost 55% of people are incorrect or don’t know whether or not there are differences in the effects of CBD or THC. That is down versus a year ago, but still a lot of confusion exists. Further, we see that 59% of people are incorrect or don’t know whether any product containing hemp will cause affects such as feeling high, relaxed, or sleepy. So think of those as more intoxicating or psychoactive effects.

 

So again, a lot of confusion across the general market of, what are these products? What are their benefits? How are they being delivered to me as a consumer? And where should I buy them? So really just laying the groundwork that a lot of confusion exists. The dispensary channel has been a legal channel in Colorado, for example, for five and a half years, with adult-use becoming legal in January 2014. The dispensary channel is evolving in education and understanding, but really important to call out that there is a lot of confusion still, especially with the passing of the Farm Bill and the emergence of this new market.

 

 

 

 

So let’s jump into how the market is evolving and growing.

 

 

Majority of US adults agree on cannabis legalization

 

 

Not surprisingly, the majority agree with some form of legalization. So as we think about the general population in the US, almost 80% agree there should be some form of legal cannabis use. Further, the majority also believes that cannabis has medical benefits. This is no longer a minority belief. The majority of the population is in support of legalization and believes it has medical benefits. We see this across the entire US. We see this span different demographic groups. Again, important to call out, this is, to some degree, becoming mainstream.

 

 

Cannabis market size in 2024

 

 

Further, as we think about the growth of the market, and apologies that some of these values aren’t showing up, as BDS analytics looks at the market size and where it’s going through 2024, we project a global market of over 40 billion by 2024. You can see here the green bar, this is the US. The yellow is Canada. And the blue is the rest of the world. So clearly growth in the rest of the world, but the majority of legal regulated marijuana and spending, this is regulated cannabis, so the dispensary terminal, the dispensary marketplace, the US is still the lead factor here. This is no longer a Western phenomenon. We are talking about mainstreaming across the US. And again, the US is driving this growth here. Over the last couple of years, this has predominantly been driven by the turnover of California becoming an adult-use market. But again, 30 billion of that over 40 billion is coming from the US.

 

And I love to call out, our analysts lined up the US state markets to global countries, and what’s fascinating is if you look at that list ranking the top 20 global cannabis markets, you have, number one, California, number two, Canada, number three, Colorado, and then you have a handful of other US states, number nine, Germany, then more US states, and number 19, the UK. So all of a sudden you can understand the sheer size of the US marketplace and the size of each of these state markets.

 

 

The US is no longer a western phenomenon

 

 

Worth calling out, in 2018, there were three adult legal markets in the US that surpassed one billion in annual spending, again, for regulated marijuana. So we’re not talking about the hemp-derived market yet. And by 2024, we’re anticipating over 15 US states to surpass that one billion mark. So again, no longer a Western phenomenon, it’s no longer the wild, wild West. This is evolving across the entire US, which states in the Northeast and states in the Midwest are already turning to be adult-use legal.

 

 

CBD is exploding

 

 

But cannabis is not just about THC anymore. We’re talking about CBD. And again, CBD is a cannabinoid taken from the plant that can be available from a marijuana plant or a hemp plant. So this CBD kind of explosion isn’t just about the mainstream hemp-derived market. We’ve seen the growth of the CBD marketplace in the dispensary for years now with the functional benefits that these products provide consumers.

 

 

Hemp-derived CBD products

 

 

And further, now you’re seeing these hemp-derived markets appear in the general marketplace. So now this legal cannabis has gone from a regulated marijuana marketplace, predominantly driven by a dispensary channel, to now being something that a consumer can buy in many different locations as they shop throughout the day.

 

 

CBDs crossing into general retail

 

 

So if we think about that further, and we break this down, as you saw earlier, 30 billion is the size of the dispensary channel in 2024, and as we break that down across other opportunities where cannabinoid products will be sold, you can see, by 2024, we’re predicting the total cannabinoid marketplace in the US to be 45 billion.

 

So if we focus here on the stacked bar chart that says 2024, that bottom part in green, the 25 billion, that’s predominantly THC products sold in the dispensary. The next section, the 5 billion, that’s other cannabinoid products sold in the dispensary channel. You add those two together, that brings us to the 30 billion we already talked about. Then we layer on, with the passing of the Farm Bill and the availability of these products in the general mainstream channels and marketplace, 13 billion. This is the non-THC cannabinoids, right now predominantly CBD, available in general retail. And then the last portion of this chart is the 2 billion coming from prescription drugs. So with the passing of Epidiolex by the FDA, we have a prescription cannabinoid product available in the marketplace. Again, that’s 2 billion. Now we understand this marketplace is going to be a 45-billion opportunity by 2024.

 

 

The legal Cannabinoid the consumer

 

 

So if we drill into this further and we think about the consumer and the evolving consumer, it’s really important to understand the size of this consumer marketplace and how it’s evolving. Larry, I’m going to pass it to you.

 

 

Cannabis consumers, acceptors and rejectors

 

 

Larry Levin:

 

Yep. Okay, well, thanks Jessica. I think, again, the excitement has to be brewing here about what’s available to us in the marketplace. So it’s really important, I think, as Jessica was saying, to really look at the consumer. And fascinating data that BDS has been tracking on a regular basis. In its latest research earlier this year, two-thirds of the American population is either a consumer or an acceptor of cannabis. And this is among respondents in the legal states. So when we think about this, again, it helps us to size the opportunities that are available to us. Of the 67%, 38%, or more than half, are already consuming.

 

 

percent of adults in fully legal cannabis states consume

 

 

And more importantly, I think it’s about the momentum that we’re seeing in the industry. When we looked at the first quarter of 2018, 31% of the population told us in the BDS interviews that they were consumers of cannabis or cannabis products in the past six months. That has swelled seven percentage points, or more than 20%, since 2019 and so, I think that’s just further evidence for the jury that there is a lot of groundswell of excitement and opportunity that’s available to us as both manufacturers and retailers. So, I think it’s also important to know that there has been a continued decline in the number of outward rejecters in the marketplace going from 37 percent a year ago to 33 percent today, so there is more acceptance, more interest to think about this product lineup as a way to meet different need states.

 

 

There is no one cannabis consumer

 

 

And in fact, as we think about who the consumer is, I think we need to dispel a lot of rumors in the marketplace, because really the cannabis consumer spans generations from young to old, it spans both men and women, both socio and economic backgrounds, again different need states are all being answered by this. So, this is not a product that is really dedicated to just one particular segment of the population. It really has an umbrella-like strategy that’s available to both manufacturers and retailers to be able to connect with the population that’s interested in the benefits that can be derived from purchasing.

 

 

Health and wellness benefits of cannabis

 

 

In some of the survey work that DSA has done, we found that nearly three-fourths of consumers are using it for recreational and social benefits and other, more than half are using it for health or medical benefits. And in fact, a third of the population uses it for both, so they see that phenomenon, they see the benefits that can be remedied and accepted and enjoyed on both sides of the need-state whether it’s recreation or it’s health.

 

 

Dispensary channel is relevant for leading manufacturers.

 

 

And in fact, when you start to look at that, then there are implications across many categories in CPG that has been long tracking and many of you participated in on a regular basis whether it’s the decline in consumers who are saying they’re going to use prescriptions less often or use OTC less often or they’re going to substitute cannabis for beer, wine, and spirits. There is a new competitive set that we need to be thinking about from a manufacturing point of view in understanding how do I capitalize or how do I minimize the distraction or the opportunity that’s available because these products are out here?

 

 

15% of US adults have consumed hemp derived products in past 6 months

 

 

So, the redefining the competitive set becomes really, really important. I think the other thing that’s important to recognize is that 15 percent of U.S. households, U.S. adults in the legal states have consumed hemp-derived products within the last six months, so it’s a smaller proportion in the 38 percent in the legal states, but it gives us again, an opportunity of what the potential is to hit the market.

 

 

US General market hemp consumer at a glance

 

 

And when we look at consumers in the general hemp market, again, it really mirrors what we see in the U.S. population with an average age of 43, a little bit more of a balance maybe toward men versus women.

 

Heavy city-suburban penetration, which again, mirrors the U.S. population and the reasons that people are using it are to combat issues like anxiety, depression, back pain and I can even from a personal point of view as a Boomer, I certainly use this a lot before I go play golf. I roll on a CBD product and it’s a fantastic remedy.

 

 

Reasons for hemp-derived CBD Product Consumption

 

 

So thinking about that and a lot of people will use it, because they do feel like it’s giving them an opportunity to improve their quality of life, relieve pain, sleep better again. A number of different issues that are resident in the world here.

 

 

CBD and Legal Marijuana motivations for use.

 

 

And then, when we look at some survey data that we have used in the past, we see that consumers are really looking at CBD more than legal marijuana as a way to treat symptoms for a medical condition. Other times, they may use legal marijuana as a way to think about enjoying other activities or to enhance their concentration. So again, it’s an opportunity to think about ways to capitalize in the market. I’m going to turn it back over to Jessica to talk a little bit about what we can learn from dispensaries.

 

 

Legal Cannabinoids Learn from Dispersers

 

 

Jessica Lukas:

 

Yeah, so just to cover up on what Larry covered, again, 67 percent, so two-thirds of the adult, 21-plus population in fully legal states in the U.S. That means fully legal with dispensaries available, so retail framework set up. That’s Alaska, California, Colorado, Oregon, Washington, Nevada, and Massachusetts. In those states, two-thirds of the population already either consume cannabis or are open to it. In comparison to that, 15 percent of the U.S. 21-plus population are consuming hemp-derived products. That hemp-derived market is just really getting started now.

 

So, if you think about the opportunity here and as you think about a consumer experience, they’re seeking functional benefits from these products. They’re not necessarily going to think in silos of channels or legalization. They’re seeking the benefits of CBD and as they seek out the benefits of CBD, they can buy those products again in a dispensary, where legal. They can buy them at a Kroger, they can buy them at a Walgreens, at a CVS, soon Ulta, Sephora, you name it.

 

Your salon, your spa, specialty retailer. Now all of a sudden, you have to think about this really differently. And it’s interesting for those of us who have been in this industry for some time where now the dispensary channel has become the leading indicator of what will and will not be successful in the general market. So think very critically whether you are interested in considering launching a product in dispensary channels or not, you have to understand this channel because this channel is a guidance on categories, brands, products, and consumers and how they’re going to evolve.

 

 

Legal cannabis is not just about hemp CBD

 

 

Because again, this marketplace has been legal and open to consumers for five-plus years now in some U.S. states. Nowhere else can you get that level of understanding of this marketplace. And so, for an example of that, the dispensary channel as another reminder, it’s not just about high-THC products. CBD products have been available in the dispensary for years and are growing, so as you think of what products and product formats and flavors and offerings work, the dispensary channel’s a great place to look. A quick example of that here, what you’re looking at on the right-hand side of this slide is the percent of different product categories that are CBD products versus THC-only products sold in the dispensary channel.

 

It’s not surprising to see that amongst the highest percent of CBD products, topical, so creams, balms, salves, and tinctures have been the most prevalent CBD categories in the dispensary channel for years and are the first forms we’re seeing the transition over to the general market. So again, think of this as a leading indicator, because five years worth of transit information is very predictive of what’s going to happen with the passing of the Farm Bill and now these markets emerge and explode.

 

 

Cannabis portion control and dosing

 

 

Further, as we think about learning from the dispensary channel, important to call out a few things. Consumers are looking for portion control and dosing. Even in the dispensary, this isn’t about getting as high as possible as quickly as possible. Almost 50 percent of edible consumers prefer low-dose THC products. So think about that as low-THC, less than 10 mg per serving. Consumers are looking to have a controlled experience. Again, not just about getting stoned. With that, as we think about the retail sales data, you can see the growth rates here.

 

Microdosing, less than 2.5 mg of THC growing over 100 percent year over year. Low dose, greater than 2.5 mg, less than 10 mg growing over 70 percent and you can see those growth rates versus just the edible market. This marketplace is evolving and new and different products and delivery systems are emerging with that. Further, over 50 percent of consumers who consume edibles have chosen edible products based on the CBD content. Again, it is not fair to think about the CBD market as only what’s available in the general market. A lot of people are seeking products in the dispensary channel that are high-CBD.

 

And it’s important to call out of these people who have chosen products based on CBD content in the dispensary channel, almost 25 percent of them prefer a 10:1 ratio or higher. What that means is that ratio of CBD to THC. 10:1 being let’s say 10 mg CBD to 1 mg THC. 20:1, 30:1, these are essentially non-psychoactive products, so the competitive set of CBD spans across the dispensary channel and the general market.

 

 

Cannabis and CBD consistency and trust matter

 

 

Further, consistency and trust matter. Consumers are seeking a good experience. It’s really important to remind ourselves that people want a good experience. Whether they’re a new consumer, whether they’re seeking pain benefits, whether they’re trying to get a sleep aid, whether they’re looking to relax and unwind at home, people are looking to have a really good experience.

 

Consumers want manufacturers to do a better job of making product dosages reliable. This is already happening in the dispensary channel. It’s really important to keep in mind that the general market products also are going to be held to this standard whether it’s a 15 mg CBD beverage or a 25 mg CBD beverage, those dosages need to be reliable and consumers need to have trust in what the brands are promising them. Even among non-consumers, again, it’s all about trust and wanting to understand the experience they’re going to have.

 

Among non-consumers specifically, we see that people say they don’t consume because it doesn’t fit their lifestyle or they don’t like how it makes them feel. Again, not understanding the product, not seeing how it fits, wanting to have a good experience.

 

 

Mood and effect products in the dispensary

 

 

Thus, again, let’s learn from the dispensary. Really interesting to look at the number of products in the dispensary channel that are offering consumers promised experiences. Apologies if some of these pictures are grainy, but important to keep in mind, we are tracking almost 300 unique moods in the dispensary channel, so calm, relax, unwind, sleep. Brands are positioning their products this way to make it easier for consumers.

 

Consumers are looking for functional benefits and they may not understand Indica-Sativa hybrid. They may not understand THC, CBN, CBG, CBD. They may not even understand the turpine profiles and so now all of a sudden, brands are making it easier for consumers to understand the functional benefit they’re going to get from these products and therefore, we’re seeing a lot of sales in this way, what we call mood-and-effect branded products and a big growth in products amongst consumers desiring and wanting to buy these products, but also in actually purchasing them.

 

 

Legal Cannabinoids - Alcohol

 

 

So with that, that was a quick glimpse into how we can learn from the dispensary channel. Let’s look at actually the impact on a couple of different components and we’re going to start with alcohol. Sorry to pick on alcohol, but this is where we’re going to start. We can talk about the impact on food and beverage and we can talk about the impact on OTC or pharmaceuticals or the retail landscape, but alcohol’s a story that we’ve been telling for some time and it is interesting to think and see how that’s evolving.

 

 

Percent of 21% consuming cannabis in the US

 

 

So with that, Larry earlier showed you the growth of the population who is 21-plus consuming cannabis in fully-legal markets.

When we break that down and look at four specific states and let’s look specifically at the blue line, which is Colorado. Q1 2017, 24 percent of the adult 21-plus population was consuming cannabis. Fast forward two years to Q1 2019 and that number jumps to 41 percent. That’s a 70 percent increase in the percent of Colorado consumers since 2017, so the size of the cannabis consumer market continues to grow even in states that have been legal for five-plus years.

 

 

Comparing alcohol and cannabis consumers

 

 

When we break that down further and think about alcohol consumers and cannabis consumers separately and then determine the overlap.

What you can see here is in fully-legal states, again Alaska, California, Colorado, Oregon, Washington, Nevada, and Massachusetts, 45 percent of alcohol consumers 21-plus in those states are also cannabis consumers. When we look at cannabis consumers in those states, 65 percent of cannabis consumers in these states are also alcohol consumers and that’s an important thing to call out. So, almost 50 percent of alcohol consumers are consuming cannabis and already the majority of cannabis consumers are consuming alcohol. But when we start looking at the trends over time, this is where the risks start emerging.

 

 

Risk - Cannabis increase and alcohol decreases

 

 

The percent of alcohol consumers consuming cannabis is increasing, so we can see in this blue line, it going from 36 percent to 37 percent to now 45 percent of alcohol consumers consuming cannabis. At the same time, the percent of cannabis consumers consuming alcohol is decreasing over time, so from 72 percent to 65 percent. That means as people convert and become a cannabis consumer, some of those people are deciding to no longer drink alcohol and we’ll talk about this in more detail, but this is risk factor number one for alcohol.

 

 

54% people who consume alcohol and cannabis as substitutable

 

 

When we break down specifically additional risks, and this 54 percent is representative of people who consume both alcohol and cannabis and who see them as at least sometimes substitutable. There are two key risks we want to speak about amongst this 55 percent of the population who sees cannabis and alcohol at least in some occasions, in some need states, as interchangeable. The first is pairing. As we think about pairing, 14 percent of people who consume both alcohol and cannabis, pair the two frequently. And when they do pair the two, 45 percent of those people consume less when pairing.

 

So, let’s think about a specific need state or occasion of this. It’s a Friday night, you’re with your significant other, that used to be a beer, wine, or spirits occasion. Now, you’re also a cannabis-consuming household and you may decide that instead of having two glasses of wine, you’re going to have one glass of wine and have a more premium edible or maybe hit a vape pen. All of a sudden, alcohol hasn’t lost that occasion, but they’ve lost a unit of consumption in that setting and that’s important to call out. We’re not saying they’re always interchangeable, because cannabis spans from truly medical application all the way to fully recreational application.

 

And there are many need states and occasions that are relevant to cannabis that are not relevant to alcohol. So, this isn’t a one-for-one equation with alcohol. There are specific occasions and specific times when there are risks and that’s what we’re calling out here.

 

In addition to pairing risks, we also have these substitutional risks.

 

 

three key occasions

 

 

When we think about the risks for substitution, let’s just highlight three key occasions or day parties in which there is more substitution happening than others. Unwind time. So kicking off your shoes, taking a deep breath and relaxing at home after work. That previously skewed to be a beer, wine and spirits occasion. It’s also very highly related to a cannabis occasion. Almost 70% of cannabis consumers who consume inhale-ables look to relax or be mellow, and almost 52% of editable consumers look to relax and be mellow with that consumption. So a lot of play happening during that occasion in which cannabis is going to steal share in occasions away from alcohol.

 

Further, daytime fun. Think of it as a Sunday Funday, going out, being with close friends, sometimes in a public setting, sometimes in a private setting. Oftentimes a more personal, smaller group of people. Again, a lot of consumption of cannabis having to do with having fun, relaxing, unwinding hits this occasion as well. The last, just hanging out. Think of these as small get-togethers with friends and family, maybe a backyard barbecue or having fun by a pool or watching a big game. Again, close friends, small setting, but a lot of overlap here, especially an impact to beer in this occasion. Again, two main myths, pairing and when they pair, consumers tend to consume less alcohol and substitution.

 

 

social alcohol occasions are safer

 

 

But it’s important to call out that for now, given regulations, what’s going on in the marketplace, larger group and more social alcohol occasions are still safe or at least safer. Again, we have regulations where social consumption is really not allowed in a lot of states for cannabis. Further, we have to agree or admit inebriation or buzz from cannabis is different from alcohol. So as you think about the applications here, you see the bigger risk again on those need states I just called out. Just hanging out, daytime fun, and unwind time. Versus those that are right now a little bit more safer for alcohol, special events, date night, going out and partying. A bit more safer today.

 

 

70% or more have not changed their alcohol consumption

 

 

As we break this down and think about the impact over time, the majority of alcohol consumers who also consume cannabis are still consuming the same. You see that column identified the same. Almost 70% or more have not changed their alcohol consumption. However, there’s a quarter of the population who consume both alcohol and cannabis who have decreased their consumption with time.

 

 

decreasing alcohol consumption when using cannabis

 

 

When we think about the size of that kind of impact amongst people who are decreasing their alcohol consumption, again about 20% across beverage alcohol types, consumption of alcohol is dropped almost 50%. That’s a pretty substantial impact. This is just talking about the percent of consumers and how many drinks they’re decreasing over time. Important to call out that the consumption dynamics of these, many of these people prior to the cannabis consumption is they were not all heavy consumers of alcohol. A lot of them were light consumers, many of them consuming cannabis because of medical ailments or health-related issues. There’s a lot of factors here we have to consider, but there is a risk, and we see that happening in both pairing and substitutability.

 

 

 

 

 

 

 

 

 

Larry Levin:

 

I think Jessica did a phenomenal job of articulating the impact of cannabinoids on bev alcohol. As she said earlier, we’ve got a lot of other categories that we’re studying to see what the impact will be today and in the future. It’s also important to really look at it from a retailer adoption because a number of retailers have really jumped in and seen the benefit. You take an example here that we’ve got with Kroger and talking about the fact that CBD items are going to be in over 1300 stores in 22 States. Certainly, Kroger is looking at the opportunities to satisfy its shoppers and their particular needs for products like this.

 

 

CVS selling CBDs

 

 

CVS also jumping on the bandwagon here and having items that’ll be sold in states from Alabama all the way to Tennessee, in key eight states. So again, hemp-derived CBD products answering the needs of individual shoppers and again, seeing this as a great way to connect with shoppers and answer their needs.

 

 

Walgreens selling CBDs

 

 

Same thing with Walgreens selling CBD products.

 

 

Dispensaries dominate the CBD market

 

 

That really leads to what I think is one of the most impactful and important insights that BDS is identified in this analysis. The big green on the right side of the $4.1 billion charts are the dollars associated in the share associated with dispensaries. Right now dispensaries are making up about 50% of the total CBD market, which we’re projecting right now to be $4.1 billion. But importantly, there is the fragmented competition that’s already in place getting the other $2 billion, and more importantly, is the forecasting models that BDS and its analytical team have done to predict that the market will be a $20 billion business for CBDs in five short years. While the dispensary channel will see a cut in half for its share, the channel will actually be growing two and a half times in terms of overall dollars.

 

The dispensary channel remains an important channel but also important, and I think this is where Clay and Cynthia and a lot of the folks on the IRI team have done a great job of starting to look at the impact of different outlets around the whole of CBDs because more and more consumers are going to be able to source CPGs products across a number of channels. It just really makes, the point that Jessica said earlier, whether I’m getting it in a grocery store, whether I’m getting in a drug store, whether I’m getting it at a gym, the opportunity for me to buy CBD products becomes really critical.

 

 

Brands playing a role across channels

 

 

We are also seeing in Colorado where brands that have traditionally been sold in dispensaries are now making their way into stores like Walgreens. You take this opportunity here with a product like Select where two of the eight SKUs in Colorado Walgreens are Select and Select oil is the number one brand in dispensary. Walgreens is able to provide its shoppers and opportunity to source Select here as opposed to potentially going into a dispensary.

 

Again, the opportunities are going to be ripe and rich across the whole of CPG where consumers can source these products. Again, I think a fully blown retail strategy is really, really critical right now because the work that BDS is doing and we’re helping is trying to size the opportunities in this market.

 

 

CBD Growth Categories

 

 

Starting right now at the 1.8 billion but looking at incredible growth for, whether it’s edibles or topicals all the way out to pet care, there are a number of categories that each of you plays in on a regular basis that we’ll be able to seize the opportunity to win by having really the ultimate omnichannel approach from a traditional, to e-commerce to dispensaries. It really becomes a critical way for you to be able to win with the consumer.

 

 

Legal Cannabis is a game changer

 

 

Just turning it back to Jessica for a quick summation of what we told you earlier, but I think it’s great for Jessica to rearticulate the learning that we have seen so far. Jess?

 

Jessica Lukas:

 

Yeah, definitely. So again, just reiterating, and I know I mentioned this and so did Larry earlier, legal cannabis is new. Cannabis is not. So while regulations and legalization have changed in the marketplace, it’s important to remember that a large portion of the adult population has been consuming or has experienced consumption of cannabis over time. That’s important because we have a marketplace and we have an industry that has been here. It’s now converting over to legal. That’s really important to think about in terms of the size of the marketplace and where this is going. If we broke it down and included elicit sales in this growth rate, it would definitely look lower, but we’re talking about a legal marketplace now, and there’s so much evolution and growth with that. Also multifaceted consumption of cannabis. So anything from social recreational on one side to fully medical application for a patient with cancer who’s dealing with chemotherapy and every need state in between.

 

Again, you have functionality and application. On a Friday night, as I mentioned, with your significant other relaxing or unwinding. On a Saturday afternoon after a long run, applying some type of topical treatment, for some endurance athletes consuming prior to a workout. Maybe on a Wednesday night having a migraine and utilizing a CBD gummy or trying to help sleep. Again, the number of use cases, there are so many and consumers are using it in so many aspects of their life. It’s really important to understand this. With the passing of a Farm Bill, this hemp-derived CBD marketplace emerging in will soon explode. We have to consider what this entire picture looks like.

 

As we talked about, the general market is extremely important. It’s going to drive a lot of growth, but the dispensary channel is still the largest retail channel for cannabinoid-infused products and will remain so for the next five-plus years. With that, my invitation to you is this is constantly evolving. It changes every day, week, month. Definitely changes drastically year over year. This isn’t something to investigate once and leave it alone and wait to investigate it a year from now. It’s constantly evolving, so please keep up.

 

 

IRI + BDSA

 

 

As we think about this partnership and what we’re bringing to the table, it’s overlaying everything that BDS Analytics does with what IRI does. The objective here is to provide comprehensive coverage of the cannabinoid market. So being able to track every CBD or cannabinoid-infused product being sold across all of the retail channels that each of our individual companies cover. That way, there’s one place to go to understand what are consumers buying, where, when, at what price point, what are the product features, the milligram content, the dosage, the flavors, the formats, and who are consumers and non-consumers?

 

This consumer understanding is evolving and growing a lot. As you think about all of the different product forms and formats that consumers can now consume. When you think about a cannabis consumer, if you’re thinking about the 21-year-old stoner stereotype living in Boulder, Colorado, that is no longer the case. It’s important to understand both consumer and non-consumer behavior.

 

 

Retail sales tracking from IRI and BDSA

 

 

Again, as we go to the next slide, if we think about what’s out there and available, being able to track total CBD as well as total cannabinoid sales across all categories and all channels.

 

 

consumer insights tracking from IRI and BDSA

 

 

 

 

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