What’s Ahead in the FOG Markets?
Rising Tide – What’s Ahead in the FOG Markets Ryan Standard, Fastmarkets / The Jacobsen The following video is a capture from The Jacobsen Fuels & Feedstocks Virtual Conference...
What is the future scope and scale of cannabinoid hemp markets? Discussions of supply and demand for cannabinoid hemp products gravitate towards comparing an existing company’s sales volume and the necessary raw ingredients to satisfy their retail demand. While this theoretical exercise is useful in making a point, that very little crop is actually needed for current perceived demand, it doesn’t necessarily portend what is to come.
Cannabinoid hemp markets will broadly take two familiar paths. One is a price sensitive commodity market operating at scale, the other is a craft market, which will likely achieve on the order of 10-15% of overall sales revenues. Just for ease, let’s look at a theoretical $20 billion market, which is more or less consistent across the firms that forecast retail CBD markets. In this scenario, artisan producers would command several billion dollars of these markets, at least.
The craft brewing industry is a compelling analogue, providing some useful comparisons. That industry was built on the backs of passionate entrepreneurs that grew a market pint by pint, eventually garnering 12% of overall US beer sales in 2020. This growth is swiftly followed by consolidation, as larger corporations leverage their capital to buy market share in a segment that they cannot penetrate with existing branding. The craft beer segment reports $22.2 billion in sales for 2020, a 22% decrease YoY due to COVID. In craft beer markets, brewers blur the lines between suds, gourmet food, and art, and are nimble enough to introduce new products on a routine basis.
This is the same for cannabis flower, regardless of cannabinoid content. Larger growers will not be able to produce the same quality that a small farmer can, nor is that the aim. The future of a scaled cannabinoid industry will necessarily include all of cannabis under the umbrella eventually. The ability to create novel cannabinoids, or novel mixes based on entourage principles, makes it impossible to foresee the scope of cannabinoid therapy.
What we do know is that researchers in both human and veterinary medicine – among other disciplines – are ramping up research to support markets that are well out ahead of the science. We see researchers as an important part of growing hemp markets. Their engagement and motivation to create novel, meaningful research will stimulate market development.
Generally, research will move concurrently with market development, or trail behind, filling in the missing pieces, as it is now. The emergence of new demand sectors will be concomitant with research, much of which we cannot predict today. This is also true in hempseed and fiber segments, with their abundant applications. GW Pharma is one example of research driving market development, par for the course for drug makers.
Since the emergence of the craft brewing industry, entire value chains were created to fuel its growth. Malt houses, canning line engineers and manufacturers of brewing or botting equipment created jobs via ancillary services, in addition to the many brewing, marketing, distribution, or hospitality jobs. Brewpubs combine manufacturing and hospitality in ways we really haven’t seen prior.
Craft beer has changed downtowns across the US as the rising consumer trend fueled growth in the industry. Industrial areas suitable for production were revitalized and turned into places that people eagerly patronized. The economic impact on communities has been substantial, particularly towns like Asheville, NC, one of the many beer towns in the US that relies on beer tourism.
Consumers have shown that they will pay for unique products made with premium ingredients, with a preference for locally or at least domestically sourced. Craft cannabis flower, regardless of cannabinoid profile can benefit from similar consumer trends. High THC varietals will always have an overall advantage. Americans proved this at dispensaries around the country during last year’s lockdown. They have also proven that they are willing to drive to industrial backwaters to enjoy the ambience of the stainless-steel appointments found in a brewery. An indoor/greenhouse grow combined with hospitality space could be a winning formula for cannabis flower producers, incorporating viewing rooms with product sampling.
Cannabis has an advantage over beer in that it is a good fit for agritourism. Event venues with music have also been good for brewers. Hemp operators serving craft markets can increase revenues considerably by incorporating the public into their programs. We anticipate hemp farms pursuing a winery model in the future, where customers can sample various flavors of flower, but also other concentrate products as part of a food and beverage offerings. Low THC hemp has the advantage of not interfering with driving, and not over intoxicating people, some of which may have no experience with psychotropic cannabis. Nevertheless, MJ “wineries” will be a big hit in locations like Southern Oregon, especially as younger generations age.
All sorts of obstacles litter the road ahead, but they will be negotiated piecemeal, as with craft brewers. Siting brew pubs has been challenging in some states or towns, and some confronted unforeseen infrastructure problems, like sufficient water. The hemp extractor version of this is electricity, and it was not uncommon for these operators to have to relocate, because existing zoning did not allow for added electrical service.
The beer renaissance has dramatically increased hops expertise and research around the country, notably in the Pacific Northwest, but elsewhere, too. Brewers certainly have the advantage of uninterrupted beermaking for the last century, whereas cannabis is a very different story.
Beer manufacture is also not as pungent as cannabis, a serous problem the pan-cannabis sector must continue to tackle. Laws allowing for the expansion of craft beer were piecemeal around the US, similar to hemp production and processing. Building codes alone can be a barrier to extractors siting facilities. Commodity cannabinoids could easily be manufactured in something similar to a beer vat, and yeast derived cannabinoids could be a central part of scaled markets.
Collaborations are one important element missing in today’s MJ and hemp industries. Breweries were able to develop a strong coalition to effect policy changes, but fewer of them felt the need to protect proprietary processes. Like a painter who freely shares technique, because their unique artistry sets them apart from any other painter. Collaboration is hard to come by in the hemp space but will increase as more market participates find trustworthy counterparties. This is especially true in the fiber segment, where that entire value chain is yet to be built. With the biotechnology available to manufactures today, acreage for cannabinoids may not exceed 100,000 acres by 2025. Craft scale producers will need to produce for flower markets to be profitable, with extraction or other byproducts secondary to that crop. Even with flower demand at several million pounds annually, this can be produced on less than 2000 acres, using 2000 lb./ac yield figure.