The investment landscape in the U.S. cannabis industry has morphed dramatically over the last few years, growing and transforming from a small pool of high-risk, high-reward opportunities into a massive and thriving industry. As the market transforms, the question continues to arise: Which investments make the most sense today? More specifically: As more states vote to legalize adult-use cannabis, is the medical (MMJ) market becoming a thing of the past?
The answer is both yes and no.
The version of a medical market seen prior to 2013 and the beginning of rec legalization is fading into obscurity, as few incentives exist to sustain an MMJ-specific customer base. Purchasing medical products requires that patients overcome various obstacles (cumbersome registration processes, registration fees), whereas retail purchases require the consumer to simply walk in and show ID. Furthermore, today’s medical-only stores sell products largely comparable to those available in recreational shops, and often for similar prices, thus patients have naturally migrated to rec markets.
Legislatures and regulators in rec states are generally leaning toward merging the two markets and phasing out existing MMJ dispensaries as well. Oregon now hosts 16 dispensaries, versus 500+ retail shops. Washington no longer licenses stand-alone dispensaries at all, instead opting to grant eligible retailers a “medical endorsement”.
Given these trends, it no longer makes sense to think of medical and recreational markets or users as distinct, as we have in the past. The cannabis market will become one as adult-use stores continue to cannibalize the medical market, and the existing medical business model will soon no longer be viable once recreational markets have been approved.
Instead, a new model will emerge. The successful medical canna-business of the future will offer products that are tailored and sophisticated. It will have a narrower but more loyal and reliable customer base. MMJ businesses will look more like pharmaceutical companies, drawing from the research that is taking place globally, specifically and intentionally treating conditions with isolated cannabinoids, patenting, testing and selling tinctures and transdermal patches rather than gummy bears and brownies. Physicians will prescribe appropriate dosages corresponding to patients’ ailments, rather than patients and budtenders using trial-and-error.
A survey of over 2,000 cannabis users performed by Brightfield Group and HelloMD in mid-2017 revealed that despite the lack of guidance or information available on cannabis as medicine, patients are – even now – taking the initiative to seek out specialized products to meet their needs.
- Nearly half of those surveyed regularly use cannabidiol (CBD)-only products, recognized – anecdotally – to treat everything from epilepsy to chronic pain.
- Approximately 16% regularly use THCA, a lesser-known cannabinoid used to treat nausea and arthritis, among other things.
Neither of these products has psychoactive effects (they are not used for “getting high”), but rather, each is developed specifically to provide medical relief. Their use indicates that medical patients are becoming more sophisticated and canna-meds are beginning to better distinguish themselves from the recreational products on the market. Although at present MMJ opportunities appear limited, a transformed medical market will likely surge to cater to these patients, providing excellent investment opportunities for those prepared to embrace them.
Source*: Survey of 2,300+ HelloMD medicinal cannabis community members from the United States (primarily California) and abroad, conducted in partnership with Brightfield Group in mid-2017*
Jamie Schau attained a B.A. in International Studies and an M.A. in International Development from the University of California, San Diego. Since early 2015, she has been a senior market analyst with Brightfield Group, where she performs quantitative and qualitative analyses of various aspects of the U.S. marijuana markets.