Canadian CANNAINVESTOR Magazine April 2017 - Page 122

122

“The marijuana industry is a CPG industry. Kraft Foods or The Hershey Company would be examples of brands that operate in the food sector of this industry. An industry where branding and brand recognition is paramount. In the marijuana industry, we’ve seen the cost of dried leaf dropping significantly in Colorado, Oregon, and Washington. The dry leaf has become a commodity of sorts, fighting for the bottom on price, and we see this happening time and time again when markets start to mature. It has become more mature with medical legalization and will be even more mature as recreational cannabis becomes legal.

So the reality is, it’s similar to the food business, where brands make money. Ingredient suppliers don’t make much because brands can choose from many different suppliers for the raw ingredients they use to produce the final product, and then sell it to us consumers as brands we all know and love.

There are two main reasons to invest in a branded company: the first is that the margins for dry leaf producers have been squeezed as the market matures; and secondly, margins for edibles have gone up because the price of wholesale leaf has gone down, yet branded edible products are selling for the same price but paying less than half price for the THC that is infused into the products.”

The following chart highlighted in the ‘Marijuana Business Factbook 2016’ illustrates the translated effects on profit margins in this segment, reiterating Jeff’s assertions, with the cannabis infused products market outpacing pharmaceuticals, wine and spirits, beer, cigarettes and soft drinks by a commanding margin.

(BDS Analytics, Marijuana Business Daily - https://mjbizdaily.com/factbook/)