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November 26, 2019

Due-Diligence Is Key for Betting on Cannabis in Nevada

Nevada and cannabis

The Nevada cannabis market is unique among states with legal recreational cannabis regimes. The role of tourism plays a big role in shaping retail trends. The concentration of sales in urban centers stands apart. And the state’s regulatory framework offers benefits and challenges for cannabis companies and investors.

Since July of 2017, when adult-use sales began in the state, Nevada dispensaries have generated $1.1 billion in sales through September of 2019. (Retail data tracked in our GreenEdge® platform.) The state allows reciprocity for medical patients from other states, but as in all other states with both medical and adult-use regimes, sales in the medical channel have declined. Across the period under review, adult-use sales contributed 84 percent of revenues.

Investors considering the Nevada market should pay close attention to the state’s quirks. Understanding them can help lead to marketplace success. Failing to study the state’s idiosyncratic trends and regulations, on the other hand, will undermine efforts at commercial triumph.

 

Here are nine Nevada cannabis market dynamics to keep top-of-mind in 2020.

 

The Power of Tourism is Valuable for Brands in Expansion Mode

Tourism is enormously important to the state. Last year, 42 million visitors spent time in Nevada, making it the third most popular state for tourism in the United States, behind California and Florida. Meanwhile, the state’s population of 2,643,000 represents a fraction of California’s, with its 39,500,000 million residents, and Florida’s 21 million, respectively. Those 42 million visitors to such a thinly populated state absolutely influence retail trends.

With so many people visiting Nevada, including cannabis consumers and potential investors, having well-branded packages on shelves can amount to happy introductions between Nevada brands, and consumers and investors from other states.

 

Urban Concentration of Retail Further Cements Connections with Investors

The vast majority of Nevada’s $516 million in sales thus far in 2019 have occurred in the Las Vegas and Reno metro areas, where 90 percent of the state’s residents live. In fact, our Consumer Insights research has found that Nevadans are significantly more likely to live in a city (58 percent) compared to cannabis consumers in other adult-use states, where 37 percent live in cities.

So not only does Nevada enjoy an unusually high proportion of tourists to residents, the state also concentrates most of its cannabis sales within the metro areas of two cities: Las Vegas and Reno. This is helpful for investors. The unusually high concentration of consumers in just two markets makes it easier to introduce brands to a wide swath of potential consumers and investors.

 

Pre-rolls Are Potent

In Nevada, Pre-rolls comprise 14 percent of all cannabis sales. By comparison, the pre-roll slice of the pie is 6 percent in Colorado, 7 percent in Oregon and 9 percent in California. Nevada cannabis consumers clearly like buying Flower ready-to-smoke — no pipes or bongs required.

The singular popularity of Pre-rolls in Nevada surely speaks to tourism. Visitors, most of whom are staying in hotels, don’t want to buy accessories, which they likely will throw away at the conclusion of their vacations.

 

Disposable Vapes Pack a Punch

The name itself appeals to people jetting in and out of the state: a disposable Vape is something to leave behind, rather than cart back home.

Disposable Vapes are big business in Nevada. In the Silver State, Disposables represent 25 percent of all Vape sales. Consumers in other states are less enamored. Sales of Disposables represent 12 percent of Vape sales in California, 12 percent in Colorado and just 5 percent in Oregon.

 

Flower Prices Holding Steady

The average price for a gram of Flower this year through September was $9.09, which is roughly similar to California’s gram price. During the same period last year in Nevada, the average gram was $8.61, so gram prices have actually climbed in Nevada.

Per-gram costs have fallen in other recreational states. In Colorado, the average gram price through September of this year was $4.23. Cratering prices are even worse in Oregon, where a gram of Flower sells for $4.10.

So far, at least, Nevada has managed to maintain relatively healthy Flower prices. This might not cause consumers to rejoice, but it is good news for dispensaries and growers.

 

Sales Are Growing, But Not Across All Categories

Categories and sub-categories experiencing the strongest growth are products like Pills, Topicals and Sublinguals. These categories have strong potential for investors, with the caveat that consumer demand, for now, is not intense even though growth is robust. They represent small slices of the sales pie. Meanwhile, growth in the dominant categories of Vapes and Candy continues to spike, due to powerful consumer demand.

 

Nevadans Are Big Spenders

Our consumer research finds that Nevadans on average spend more on each dispensary visit ($77) than the adult-use average of $68. They also walk away with an average of three items per dispensary visit, rather than the average of two in other states. People like to party when in Vegas, and dispensary sales trends show that the parties are happening year-round.

 

Ingestibles Are More Popular in Nevada

For a lot of investors, Ingestibles are especially ripe for consideration. Unlike Flower, which is an agricultural product, and Vape pens, which in many ways fall under technology, Ingestibles are straightforward consumer packaged goods. For people experienced in manufacturing, branding, marketing and distributing CPGs, jumping into the Ingestibles market feels comfortable given past work experiences.

Our Consumer Insights team has established that 68 percent of Nevadans have tried an Ingestibles product during the first six months of 2019, compared to 62 percent in other states. This is not a striking difference, but it nevertheless is tangible.

 

Limit on Dispensaries A Potential Strength for Some

Nevada is one of only five adult-use states that limit dispensary licenses. Based on Nevada’s current population, only 130 dispensaries will receive licenses by the end of 2020. Twelve out of Nevada’s 16 counties have outlawed dispensaries; that means most of the new dispensaries — Nevada today has about 70 dispensaries — will launch within the Las Vegas and Reno metro areas.

The license limit helps keep Flower prices higher than in states like Oregon and Colorado, where they have dropped precipitously.

It also lets dispensary owners and brands charge more for products. On average, Nevada dispensaries charge higher prices for similar products in other states, and each dispensary on average generates more revenue than their retailer peers in other states. Consider: The average retail price for all individual products is $13.34 in Nevada during the period under review. In Oregon, it’s only $6.93.

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