6 ways legal cannabis will transform the CPG industry
It is predicted that legal cannabis sales in the United States will reach $41 billion by 2025.
With total reported sales in 2018 of $8 billion, that's some enormous growth over the next few years!
It's no wonder legal cannabis products are poised to become the largest growing new consumer packaged goods (CPG) segment in the U.S. Major changes to the business landscape are coming as a result...and many have already begun.
The legal cannabis industry is truly a market force to be reckoned with. Here are 6 things we expect to change in the CPG industry as a result:
The substitution effect
Cannabis is a formidable competitor for packaged goods like alcohol, nicotine, and pain relievers.
The numbers speak for themselves: Nielsen reports that 41% of American adults trying to quit smoking would consider using cannabis for smoking cessation. And 1 out of every 5 beer drinkers indicated they would spend less on beer due to cannabis consumption.
The pharmaceutical industry will also be heavily impacted, especially traditional OTC pain relief products. In fact, of those consumers who use OTC pain relief medication, 35% would consider using cannabis to treat their pain instead.
The prescription pain relief industry is at risk of substitution as well. It's no secret that an opioid epidemic exists, and there is a growing movement to help minimize that crisis by replacing opioid drugs with medical cannabis products. In August of 2019, Colorado became the third state allowing doctors to recommend medical marijuana for any condition for which they would prescribe an opioid.
If manufacturers of substitutable products are not prepared to diversify, they will be at risk for major losses. Forward-thinking companies are already seeing the opportunity to add to their revenue streams with cannabis-infused or cannabis-adjacent products.
A boon for packaged snacks
Corn chips. Cookies. Puffed cheese snacks. All foods typically loved by those that experience “the munchies.” Increased appetite as a side effect of THC consumption has historically been played for laughs, but after increased legalization, it has become a legitimate driving market force.
"Nielsen data shows that growth rates for both candy and snacks are rising faster in [areas where cannabis is legal] than in geographies where cannabis has yet to be legalized for recreational use." - Prepared Foods
Prepared Foods agrees: "Nielsen data shows that growth rates for both candy and snacks are rising faster in [areas where cannabis is legal] than in geographies where cannabis has yet to be legalized for recreational use."
Additionally, demand for cannabis and CBD infused edible snack products is increasing. 'Eating your cannabis' is seen as safer and more discrete than smoking, and so appeals to parents, grandparents, and young professionals that may be hesitant to use it otherwise.
Whether consumers snack on their cannabis or because of their cannabis, demand for packaged snack foods is expected to rise as legalization continues.
The race to automate
When cannabis products were entirely illegal, packaging was done in small quantities by hand. Early on, legalization created new supply chains and markets, but cannabis companies still largely packaged their products manually.
We are now entering a new age of cannabis packaging, led by companies that realize they will not be able to compete and keep up with demand if they don't invest in cannabis packaging machinery. Additionally, cannabis companies are consolidating, creating huge corporate structures that necessitate advanced packaging techniques.
"The legal cannabis industry is growing at a rapid pace and the only way to keep up is automation." - Director of a California cannabis company
As legalization spreads, packaging regulations arrive with it, the main issues being proper labeling and tight weight tolerances. Packaging equipment can easily meet legal requirements with ease, speed, repeatability, and high accuracy, making it even more attractive to growing cannabis companies.
Anecdotally, interest in cannabis packaging machines at Viking Masek has increased by almost 110% from 2017 to 2019. We've sold more cannabis packaging systems in 2019 than ever before, and we expect demand to keep increasing.
One of our California clients said it best: "The legal cannabis industry is growing at a rapid pace and the only way to keep up is automation."
Interested in learning more? Check out our Beginner's Guide to Cannabis Packaging Machines.
Cannabis packaging grows up (and gets flexible)
Long gone are the days of the 'clear plastic baggie you can hide in your pants pocket.' Since being legitimized as a legal product in many areas, cannabis packaging has undergone a serious makeover.
Today's legal cannabis consumer demands a sophisticated product with premium, safe packaging that's impressive enough to share with their social media followers. Enter: The Doypack (stand-up pouch).
Cannabis edibles are especially leading the way, transitioning to flexible stand-up pouches for a specialty, small-batch look and convenience. Easily fitted with a child-resistant closure, stand-up pouches combine looks, practicality, and safety into a total package.
The rise of cannabis contract packagers
Contract packagers offer packaging services for hire. If a business finds that it does not have the internal capabilities, expertise, or resources to package its product in-house, contracting with a packaging company is a popular and cost-effective option.
In August of 2017, Marijuana Business Magazine estimated that there were only a handful of contract packagers that would handle cannabis products. Today, cannabis contract packagers are in showing up in legalized areas at a growing rate. They see that smaller cannabis companies don't want to invest a bunch of their capital into purchasing their own packaging equipment, so they step in to offer their machinery and services.
After the 2018 Farm Bill was passed, hemp and hemp products are no longer considered an illegal substance at the federal level. With that, a hemp product called cannabidiol, or CBD, also became legal. The FDA is still carefully regulating hemp and CBD, but overall companies that produce these types of products have been given the federal go-ahead to pursue their business goals more aggressively.
And boy, they've been doing just that! CBD products are showing up in almost every consumer packaged goods segment, from food and drink to personal care to dietary supplements. Some experts predict that CBD may eventually become a new 'background product' in many consumer packaged goods, similar to caffeine.
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