In an exclusive interview, Roy Bingham, co-founder and CEO of leading market research firm BDSA provided valuable insights into the pricing dynamics of emerging cannabis markets and regulated supply and addresses the long-term viability of businesses, offering important considerations for investors venturing into these evolving landscapes.
Navigating Emerging Cannabis Markets: Dynamics and Market Growth
Bingham highlighted the impact of licensed supplier availability and supply volume on pricing in emerging cannabis markets. In states with limited local cultivation infrastructure, reliance on licensed growers can result in early-stage supply shortages and as retail stores multiply, growers may face challenges meeting the growing demand.
In mature markets like Colorado, with its 700 dispensaries, stability is attained as the number of dispensaries increases, leading to intensified competition and price reductions. Surprisingly, in emerging markets like Michigan, despite a notable retail price decline of over 30% last year, the market displayed strong growth.
Bingham noted that some states, like Illinois, still have relatively high prices. However, the decline in prices may be slower in such states due to factors such as the license structure, limited availability of retailers, and a smaller number of growers.
Assessing Regulatory Landscapes and Dispensary Density
Bingham stressed the significance of evaluating the regulatory landscape in different state markets before investing, with a particular emphasis on the number of retail locations per 100,000 people as a key metric for assessing the framework.
Notably, emerging markets like Illinois demonstrate the lowest density of dispensaries, whereas Oklahoma and Colorado exhibit a considerably higher concentration in relation to their population count.
He highlighted that while a higher number of dispensaries initially facilitates rapid growth and consumer accessibility, there is a risk of subsequent struggles, closures, or consolidation as some dispensaries may fail to generate enough revenue to sustain their operations.
As an example, he mentioned the contrasting revenue figures in Illinois and Oklahoma.
“In Illinois, the average dispensary generates approximately $10 million in revenue, whereas, in Oklahoma, the average dispensary only brings in around $700,000. These discrepancies may have implications for the long-term viability of businesses operating multiple locations in high-volume markets,” Bingham said.
Bingham drew attention to the challenges of emerging markets and raised a crucial question for investors. “Who will be the potential buyers of your dispensaries, cultivation facilities, and manufacturing operations in the long term?”
He underscored the significance of establishing sustainable and profitable businesses in rapidly expanding and emerging markets, while also considering the future trajectory of the national market and the availability of capital.
And he urged investors to stay ahead of competitors and adopt a long-term approach, rather than seeking quick returns through short-term investments.
Bottom Line: Keep A Long-Term Approach
Although Bingham acknowledged the potential of purchasing licenses, acquiring locations, or funding companies, he also advised against expecting rapid gains.
“The question, in a way, is can you, in those fast-growing and emerging markets, create a sustainable business that’s profitable in its own right and then ride out the storm until the day when the national market looks attractive?” Bingham asked.
And he concluded: “Can you be ahead of those people entering your local market directly or buying somebody else rather than buying you? There are opportunities in all markets to purchase new licenses, buy locations, or fund companies, but I see it as a long-term hold attitude. Not, ‘I’m going to flip this in two years.'”