The Future of Cannabinoid Production and the Battle Royale of Cannabis

Provided by the Eighth Revolution team, the Cannabinoid Corner looks to provide a broader understanding of the entire cannabinoid industry as they see it. Each month, Eighth Revolution aggregates published research reports and private conversations to provide a strategic roadmap on trends and insights for the hemp/cannabis industry.

The Cannabinoid Corner is one of the sections of the report where they provide a broader understanding of this space through a lens that merges science and business. Here, we provide the insights they shared in their October and November reports. First, they take a look at the future of cannabinoid production in a federally regulated market. Secondly, they provide their thoughts on the battle for market share in the THC space at the retail level.

This material was originally published in Eighth Revolution October and November Partnership Intelligence Reports and appears here with permission. You can download the full October report here and the November report here. 

Manufacturing all cannabinoid analogs under one roof?

The focus of this month is the science and technology behind the manufacturing of cannabis and hemp derivative products. While the process of extraction is nearly identical between the two spaces, the hemp industry operates on a true industrial scale while the cannabis industry is still stuck somewhere between lab-scale and pilot scale. Each state’s individual market sizes, and inability to export outside the state of manufacturing, limits the cannabis industry’s reach and therefore its production capabilities.

Based on that fact, we believe that all the cannabinoid industries (hemp-derived, cannabis-derived, synthetically-derived, and biosynthetically-derived) will eventually become one large industry when cannabis is inevitably legalized at a federal level. Though there will undoubtedly be certain players that end up with a larger market share for one particular cannabinoid, based on the science and chemistry of manufacturing these cannabinoid analogs, it makes more sense to be able to produce them all in-house. This would provide the greatest revenue opportunity for companies while diversifying their product SKU portfolio.

It’s also worth noting that there are minute differences in how the material behaves from an extraction perspective based on the major cannabinoids present in the biomass. These slight differences can easily be teased out with some good, old-fashioned R&D or with the help of your strategic partners, so we recommend starting conversations with your local competition and reaching out to your local dispensary or large hemp farm to intentionally connect with those who can be of service to you later on.

The battle royale of cannabis

This month, we want to touch on a topic that’s currently affecting the cannabinoid industry; the THC side of the industry is currently experiencing a street fight at the retail level that continues to dictate success.

Success in the THC space can be directly tied to success at the consumer level due to the product’s status as an agricultural commodity. This makes it challenging to differentiate one product from another even though there are noticeable differences in the quality of products from a consumer experience perspective. Just as organic tomatoes taste better than the non-organic, so too does flower and product produced within meticulous, quality-controlled grows.

With every company’s need for incoming capital to continue their growth, and in addition to the lack of institutional funding, revenue from sales are the major driver of expansion and development. This has forced larger companies to drop the price of their products to maintain the velocity of sales so that they can hit their financial metrics. The result has been a battleground at the retail level, one with brands competing for shelf space and incentivizing budtenders to push certain products. Until further consolidation occurs, the industry will continue to follow a Darwinian model: survival of the fittest.

We hope this provided a little more context into how interconnected the industry truly is and gives you an idea of where it’s headed in the coming months. As always, please reach out if you have any feedback or there are specific topics you would like us to elaborate on in the future.

This material was originally published in Eighth Revolution October and November Partnership Intelligence Reports and appears here with permission. You can download the full October report here and the November report here.