Marijuana Business Factbook 2019

239 © Copyright 2020, Marijuana Business Daily , a division of Anne Holland Ventures Inc. You may NOT copy this Factbook, or make public the data and facts contained herein, in part or in whole. For more copies or editorial permissions, contact CustomerService@MJBizDaily.com or call (720) 213-5992, ext. 1. Financial & Operational Data: Retailers | Chapter 5 MJBIZDAILY.COM CHART 5.11: Concentration Of Colorado’s Retail Marijuana Market *The HHI is a widely accepted measure of market concentration. A higher number indicates a more concentrated and less competitive market. Note: HHI for Colorado's retail marijuana market calculated by number of companies, not licenses. Source: Marijuana Policy Group, University of Colorado Boulder Leeds School of Business, 2012 Economic Census of the United States, The Atlantic © 2019 Marijuana Business Daily, a division of Anne Holland Ventures Inc. All rights reserved. Concentration Of Colorado's Retail Marijuana Market Sampling Of Industry Concentrations Based On Herfindahl-Hirschman Index (HHI)* 2014 2015 2016 2017 97 80 101 102 Aircraft Manufacturing Tobacco Manufacturing Soft Drink Manufacturing Mattress Manufacturing Colorado Retail Marijuana 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 3,287 2,897 1,932 818 101 Herfindahl-Hirschman Index (HHI)* For Colorado's Retail Marijuna Market By Year Unconcentrated Market 0 - 1,500 Moderately Concentrated Market 1,500 - 2,500 Highly Concentrated Market 2,500 & Above 3,287 2,897 1,982 101 The retail landscape in most recreational marijuana markets is saturated ― meaning there are a large number of competitors vying for customers. This differs from market concentration, in which the majority of sales go to a small number of businesses. The Herfindahl-Hirschman Index (HHI) is a measure of market concentration used by the U.S. Department of Justice and the Federal Trade Commission to determine the effects of mergers and acquisitions on an industry. The HHI separates markets into three types: highly concentrated, moderately concentrated and unconcentrated. In a highly concentrated market, a limited number of companies dominate the landscape, making it very difficult for new players to enter the market and creating conditions for anticompetitive behavior such as price fixing and collusion. Examples of highly concentrated markets are aircraft manufacturing ― where four companies capture 80% of the U.S. market ― and tobacco manufacturing. The HHI metric finds that Colorado’s recreational marijuana retail sector is an unconcentrated market. An unconcentrated market is typified by a very competitive environment with many smaller players and no dominant forces preventing new companies from entering the space. Compared to aircraft manufacturing, it takes 364 retail marijuana companies to capture 80% of the Colorado marijuana retail market. In addition to legal uncertainty at the federal level, the absence of concentration in Colorado is likely a result of limitations on out-of-state ownership and investment in Colorado marijuana businesses. This may change in the future, as Colorado lawmakers approved a bill that would allow publicly held companies and private investment firms to participate fully in Colorado’s marijuana market. While the bill has not been signed into law, Colorado Gov. Jared Polis has expressed support for it. Although some consolidation has occurred as the market has matured, relative to more established industries, the retail marijuana landscape remains highly competitive and open ― but there will likely be more consolidation in the future.