Over the next few years we will continue to see great advances in the industry as more states approve legal cannabis use. North America should continue to see increased sales volumes, more scientific research, new products and expanding investor interest.

The caveat is that the industry still faces headwinds from inconsistent and unsettled federal and state regulations and the continued classification of cannabis as a Class 1 narcotic. This ongoing dispute stems from cannabis' special political, social and legal role as a disruptive plant to established industries producing essential consumer items such as paper, plastics, medicine and clothing. But thanks to grassroots activism at the state level, the cannabis industry should continue to make advancements that benefit its patients, consumers and the overall industry well past 2017. Now, onto the report...

Look for More Luxury Cannabis Brands

The emergence of luxury cannabis brands is the newest trend and signifies that the industry is reaching a new level of product and customer sophistication. Higher-end cannabis products in all forms have attracted national attention, including a 28 gram Jack Herer kola that sold for $2,000 in Seattle and a $3,600 marijuana cigar with 28 grams of flower and 7 grams of oil wrapped in leaves and cured for six weeks.

Now that there are 28 states, plus the District of Columbia, that allow cannabis sales, the consumer base will have the option to choose from a variety of luxury brands with more sophisticated, high-end packaging and improved brand messaging. Brands such as Diego Pellicer, Tokyo Smoke, Toast, Van der Pop, Recreator, and Shine exemplify this emerging trend and are replicating what happened in liquor brands with the introduction of high-end, more expensive tequilas, dark liquors, vodkas and sake. One company, Toast, advertises that “each puff [of its product Toast] is like having a sip of champagne and each full Slice is like having a generous glass.”

Nor is this luxury brand trend just restricted to products. Dispensaries, such as the Silvercreek Apothecary in Aspen, Colorado, boast of a rich wood design and product displays that present its products like expensive designer handbags. Edibles also can be elevated into luxury status. Défoncé Choclatier sells infused cannabis from the vantage point of a European chocolate artisan, complete with elegant packaging and imaginative copy that waxes on about product benefits.

One study from Miner & Co. Studio found that an "…overwhelming majority of Cannabis Consumers [polled] are consuming Cannabis and Cannabis products to enhance their daily and social experiences. 95% prefer a high that allows them to be 'present', 'mindful' and/or 'focused'…."

The emergence of cannabis luxury brands also gives the industry a distinct advantage over large mainstream corporations. Due to the stigma, it’s almost certain that major luxury brands, such as Gucci, Michael Kors, Chanel and Moet, will be offering cannabis products. This presents more opportunities to cannabis-specific companies to enter the profitable luxury space.

The more sophisticated brands with distinct features will be able to command higher prices in the marketplace. This, along with a more discerning customer base, will foster the development of more luxury recreational, medicinal and wellness brands.

The More States That Legalize Cannabis, The Better The Science Will Be

Despite significant obstacles from the federal government on cannabis research, NORML reports that as of 2015 there are approximately 22,000 published studies or reviews in scientific literature worldwide referencing the cannabis plant and its cannabinoids. Much of this worldwide research has focused on the endocannabinoid regulatory system, accompanied by more testimonials from medical cannabis patients and their physicians.

The year 2016 also saw some major breakthroughs in scientific and health care research regarding medical cannabis. This included the creation of the first U.S. research institution focused specifically on cannabis research, the Center for Medical Cannabis Education & Research (CMCER) at Thomas Jefferson University, “which will provide expert-developed, unbiased information and guidance to clinicians and patients about the medical uses of marijuana and cannabinoid focused-therapies.”

On the case study research side, the publication Health Affairs reported that when medical marijuana is available as a clinical alternative, it reduces reliance on prescription drugs used in Medicare Part D, especially in cases involving chronic pain, anxiety or depression. This was also found in a report from Kaiser Health News which found that in states with medical marijuana laws on the books, “the number of drug prescriptions dropped for treating anxiety, depression, nausea, pain, psychosis, seizures, sleep disorders and spasticity. Those are all conditions for which marijuana is sometimes recommended. Prescriptions for other drugs treating other conditions, meanwhile, did not decline.”

Similarly, the Washington Post reported that continued use of cannabis did not have “any negative effect on any measure of health, except for dental health.” Other sources said cannabis reduced the pain effects of migraines (Skaggs School of Pharmacy at CU Anschutz) and that a cannabis-related drug reduced the ill-effects of epilepsy (GW Pharmaceuticals). The trend here is that cannabis is now being treated as a medicine with specific benefits and applications to specific diseases. This research will only continue to expand in the years ahead.

Genetics and Intellectual Property

The future of the industry as it relates to developing product consistency and quality will be through advances in genetics. This will provide the means to normalize and standardize the industry’s products as it simultaneously makes strides to achieve pharmaceutical-grade products. Advances in genetics will also help determine craft cannabis and create predictable and consistent, organic plant-derived, medical-grade products.

On the pure research and science front, new articles are appearing weekly on genetic advances. For instance, the general direction here is for combining functional studies and molecular modeling to improve the scientific community’s understanding of the molecular basis for the physiological functions of CBD. This will allow advances in the design of next-generation CBD-targeting pharmaceuticals.

Expanding Craft Cannabis

Craft cannabis, or cannabis products that are made in a traditional or non-mechanized, often in limited batches, also are growing in popularity and this trend shows no signs of abating. Following the brand development of other craft products in beer, liquor, wine and even fashion, this area of cannabis products should explode in the years ahead as more edibles, and cannabis-infused food and drinks become available. This will be especially evident in the $X billion health and beauty industry where CBD (non-THC) products will be used for an expanding use in health, nutritional and cosmetic applications.

This will all be aided by advances in genetics and the development of cannabis brands that capitalize on their specific growing region, such as the famous Humboldt County area of northern California, which is widely considered to be the best location in the U.S. to grow cannabis. By starting the Mendocino Appellations Project, farmers in the area made major strides forward in terms of its science, professionalization, regulatory compliance and tax generating capabilities.

Agricultural products grown in a specific micro-climate, such as the Champagne or Bordeaux regions in France, have built worldwide reputations for quality and consistency. There is no reason why these appellations (the region where the product is produced) cannot be replicated in the cannabis industry via major brand-building and educational campaigns.

For instance, Humboldt’s Finest has made its mission to set the standard for sustainable cannabis cultivation with advanced “sun grown” and “rain grown” farming techniques, devoid of pesticides and fertilizers. In addition, Humboldt’s Finest farms are all PFC Verified (Patient Focused Certification), ensuring regulatory compliance and high quality product safety standards are followed. Since California may become the nation’s leading cannabis producer, Humboldt’ Finest is raising standards by reducing its water use and carbon footprint in all of its farming operations. The goal of Humboldt’s Finest is “to lead by example in showing that cannabis farming can protect local watersheds and combat global climate change with sustainable practices.”

We also can expect similar major branding initiatives in the years ahead for brands tied to individuals (Julian Marley, for instance) and specific recreational effects or product purity. In the area of product purity, cannabis grown in the most organic way possible–free of pesticides, using reclaimed water, outdoors and in the most natural way possible–should also expect to see an increase in brand awareness and customer acceptance.

Look For Advancements In Water and Sustainability Practices

When California passed the Medical Cannabis Regulation and Safety Act (MMRSA) last year, it created “a comprehensive state licensing system for the commercial cultivation, manufacture, retail sale, transport, distribution, delivery, and testing of medical cannabis.” MMRSA set new safety and health standards for the California cannabis industry, including the licensing of almost everyone engaged in the cannabis industry, testing for potency and contaminants, tamper-resistant packaging, and labeling. MMRSA also stated that all licenses must also be approved by local governments.

The far-reaching MRSA also contains requirements for water usage and prohibits the use of volatile or poisonous solvents in the preparation of any cannabis products. In other states, such as Colorado, Washington and Oregon, the health and safety of cannabis consumers also reached a higher level of protection with tests for contaminants, bacteria and mold. These standards vary on a state-by-state basis.

In California, some cannabis companies have focused on efficient water use and conservation accompanied by reducing the industry’s carbon footprint. A California craft growing concern, Humboldt’s Finest, an alliance of heritage cannabis farms representing the legendary Humboldt County, is leading by example by showing that cannabis farming can protect local watersheds and combat global climate change with sustainable growing practices.

Most cannabis farming today is done indoors with electricity-powered lights. In total, the cannabis industry uses 1% of the nation’s electricity and over 70 gallons of oil are needed to provide energy to grow just one cannabis plant, according to a 2012 study. Sun grown cannabis is grown primarily with sun, reducing the energy needs substantially. This is why Humboldt’s Finest follows a “rain grown, sun-grown” cultivation technique that collects rainwater and storm runoff to fill our ponds and water storage tanks during the winter. Then, the water is used though the dry summer without diverting precious ground water from the local watersheds.

Advances in Consumer Research

The driving force that will make cannabis a more sophisticated, profit-generating industry is consumer research.  Obtaining more data on customer preferences, demographics, use patterns, price preferences, national geographic and age differences and other product preference information will make the industry smarter and more customer focused. This will include more focused research and demographic reports, accompanied by national data sets.

Companies such as Biotrack, cannabis traceability software company based in Ft. Lauderdale, Fla., are providing complete seed-to-sale data reporting packages to dispensaries that track product from planting to final sale in dispensaries. The company’s government software solution for both the medicinal and recreational markets, provides state governments with real-time data into the seed-to-sale tracking data of every licensed medical marijuana dispensary in the state, including plant and inventory quantities, production activity, laboratory testing results, transportation activity, and dispensing activity.

To provide a more seamless link between sales and state regulatory compliance, Adherence Compliance, an automated compliance management software, is making its Compliance Dashboard via BioTrackTHC’s BT Command Center. The compliance data is made available via an API data integration with BioTrackTHC.

Other companies, such as Eaze, called “the Uber of weed,” produces consumer reports based on surveys from 250,000 California users on the Eaze platform and 5,000 survey participants. This makes it one of the California's largest data collectors on marijuana spending patterns. Similarly, the Marijuana Policy Project is producing cutting-edge economic reports at the state and national levels.

State’s Rights vs. Federal Regulation

The appointment of new Attorney General Jeff Sessions has raised issues about the enforcement of federal laws regarding cannabis as a Schedule 1 drug. Sessions has said he was concerned about state-level marijuana legalization efforts. He also suggested that in states where cannabis is decriminalized for either medicinal or recreational use, or both, have opened those states to an increase in violence. This statement has not been proven, but the Attorney General’s provocative statements have opened the doors for a confrontation between state and federal laws over the criminal jurisdiction of these laws. This should be a major evolving legal area in 2017 and will be one that shapes the industry.

Publicly-Traded Cannabis Companies

As the industry matures, more of its participants will go public. This entails raising public money, finding investors, meeting state and federal regulations, and having products with a distinct market appeal. Organizations, such as Cannafundr are now offering their services to raise money for cannabis companies. The MJIC California Cannabis Business Expo now features speakers from public companies who tout their success stories as they seek additional funding.

Currently, most publicly-traded cannabis companies have shares that trade over-the-counter. As a result, they do not have to file audited financial reports with federal and state regulators. In 2014, the Securities and Exchange Commission suspended five cannabis companies for fraud.

But there are also larger companies, such as British biotech company GW Pharmaceuticals has a market capitalization of $2.8 billion.

To track exchange-traded cannabis companies, MJIC created the Marijuana Index in January 2015, but this only includes a limited number of publicly traded cannabis stocks. The North American Marijuana Index is broken down into two country sub-indices: the U.S. Marijuana Index and the Canadian Marijuana Index. To be in the Index, stocks must have a minimum market capitalization of $10 million, a daily trading volume of $20,000 and a share price over 10 cents.

To date, there are only 23 stocks in the Index out of nearly 200 similar stocks that trade on U.S. and Canadian exchanges and over-the-counter markets. The average stock on the index has a market capitalization of $263.9 million and a share price under $4.

Just as in any emerging industry, there are also takeover targets of promising, but undervalued companies, such as Cara, Zynerba and GW Pharmaceuticals These companies are attractive because of their intellectual property and future list of promising cannabis-based drugs.

Trading Cannabis as a Commodity

The report also noted that as the cannabis market matures in terms of the number of growers, available supplies and commercial activity, there is also a growing need for growers to hedge their prices against adverse price declines and price volatility that can unset the industry’s more sophisticated financial operations.

The traditional way to hedge price volatility is via futures, options and forward contracts.  Thanks to more transparent pricing and the regular calculation of spot, or current, cannabis market prices, it is now possible for a publicly-traded financial product to be developed. This helps explain why there were at least four companies at year-end 2016 promoting the use of cannabis indexes in an Exchange Traded Fund (ETF). These proposed ETFs would use Cannabis Benchmarks as a price assessment tool, including the U.S. Cannabis Spot Index and the U. S Cannabis Implied Forward, as possible index calculation sources in 2017.

“This is a very exciting development in the industry and if it materializes, it represents a huge maturation point in the development of the cannabis industry,” according to Jonathan Rubin, CEO of New Leaf Data Services. “For the first time, investors, traders, analysts and other industry participants can monitor and analyze cannabis price data in the broader context of agricultural commodity market data, macroeconomic data, weather data, regional electricity prices. From this, they can develop hedging strategies to reduce price volatility. This will help patients and all other cannabis consumers who should see price stability in whatever they are buying,” Rubin said. “It will also help growers manage their price risk and improve their overall financial management.”

If this happens in 2017, it will be a major breakthrough for the cannabis industry. Only sophisticated, mature markets with full price transparency, an established tax and regulatory structure, and credibility can be used as the foundation for a trading and hedging marketplace.

And managing price volatility is certainly something the industry needs. Based on 2016 spot prices, the study found that price volatility in cannabis was much higher than 15 other non-cannabis agricultural products, such as corn, wheat, oil, natural gas, gold and cocoa. For example, the spot price volatility in 2016 for Oregon cannabis was four times greater than gold and twice as much as sugar. Traditional hedging strategies that are a hundred-years-old could help eliminate some of that price volatility.

While most agricultural commodity prices are determined by weather and supply-demand factors, the cannabis industry is highly dependent on  these, as well as regulations at the state and federal levels. This changing regulatory landscape creates price uncertainty and lends itself to creating forward markets, or contracts to deliver a certain amount and quality of product over a certain time frame at a mutually agreeable price. Forward contracts have existed since the Middle Ages between buyers and sellers and primarily involved agricultural products that are most susceptible to changes in weather and failed harvests.

About the 2017 Cannabis Trend Report:

Since Colorado decriminalized adult use cannabis in 2012, the $6.5 billion cannabis industry has largely been concerned about the legislative and legal environments surrounding the industry, as well as the financing needs for this growing industry. But as the election of Donald Trump has re-shaped the political landscape and made it more regulatory uncertain at the federal level, the cannabis industry has already developed enough internal momentum and legitimacy as a taxpaying, job creating machine. It is now poised to push ahead on the scientific, medical and wellness fronts to attract even wider audiences with expanded demographics and greater political strength at the state levels.

We are witnessing a major shift in the industry as more states than ever before, supplemented by hard scientific evidence and  wider social acceptance among a wider group of consumers, will propel the industry in a more definite, popular and profitable trajectory for years to come.

This is especially evident in the actual number and quality of new products that have been developed, accompanied by large infusions of investments into boutique firms that are making advances in all stages of cannabis production, from sustainable farming, to scientific analysis, research, data collection, dispensary services and the emergence of new luxury brands.

In November 2016, eight of the nine states with cannabis measures on their ballots voted to legalize it: four on the adult use side, four on the medical side, bringing the number of states that allow cannabis use in some form to 28.

In a report from GreenWave Advisors, the firm projected cannabis sales in the U.S. to be $6.5 billion for 2016. They also forecast that by 2021, revenues should reach about $30 billion, assuming that cannabis will be legal in all 50 states to various degrees.

When California fully legalized adult use and medical cannabis in 2016, the industry reached a new plateau in terms of legal status and a vast potential consumer base. The passage of the Adult Use of Marijuana Act (aka: Prop 64) was a marijuana legalization action that broke new ground in three areas: It allowed people over age 21 to possess up to one ounce of marijuana and cultivate up to six plants for personal use; the Act regulated and tax, production, manufacture and sale of cannabis for recreational adult use; and the Act rewrote criminal penalties that reduced many common cannabis-related felonies to misdemeanors and allowed prior offenders to petition for reduced charges.

While the law affected the largest state in the union, it was also important since California is considered a bellwether for other states looking for model legislation to apply to its own state laws.

Accompanying the growing base of consumers nationwide was an increased interest in investing in the emerging industry. Groups such as Marijuana Business Daily's 2016 factbook and PitchBook report robust investor interest in cannabis start-ups and this is only expected to increase in the next few years.

So given the larger national consumer base, product developments at all levels, from seed and farm operations to dispensaries, the industry is now poised for major advancement in 2017 that will see newsworthy developments in science, environmental sustainability, and the introduction of branded craft and luxury cannabis products.

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