MJBizDaily Investor Intelligence

1 MJBiz Daily | Investor Intelligence mjbizdaily.com/investing • Low tax liabilities and higher annual revenues make infused product companies attractive investment targets • Infused products account for roughly 13% of total sales in four adult-use states— and it’s a growing category • Infused product makers are among the fastest cannabis businesses to become profitable or break even Subsector Snapshot: Infused Product Manufacturers This sector of the industry is arguably best positioned to capitalize on the wave of marijuana legalization in the U.S. By Joey Peña G rowing consumer demand for marijuana- infused products is opening up a host of new investment considerations as these businesses begin to grab market share from cannabis flower. Here’s a breakdown of the current market in the infused segment and trends investors should be mindful of. THE INFUSED PRODUCT LANDSCAPE Cannabis-infused food and beverages account for roughly 13% of total sales in the adult-use states of California, Colorado, Nevada and Washington, according to Headset, a Seattle-based marijuana data analytics company. In those markets, sales have grown from less than $10 million in 2014, when adult-use continued on page 2 May 15, 2019 IN THIS ISSUE Subsector Snapshot Canadian Opportunity Metrics that Matter Insights and Analysis Infused chocolate being made at a Kiva facility. PhotocourtesyofKiva marijuana became legal in Colorado, to nearly $120 million in the first quarter of 2019 for the four markets combined. It’s also worth noting: • Sales of cannabis-infused gummy products dominate the category, accounting for 49% of sales in California, 46% in Colorado and 52% in Nevada, according to Headset. In Washington state, where regulations on gummy products are murky, the products account for only 17%. • Sales of gummy products grew 140% from February 2018 to February 2019. Sales of caramels, chews and taffy grew 77%, and infused drink sales—a category that has attracted significant interest from liquor and beverage giants—jumped 52%. • The top five edibles makers have captured 53% of sales in their respective markets, and the leading five beverage makers control an eye-catching 80% of their category. But retailers add an average of seven new products to their shelves every month to replace low-selling brands, which underscores an opportunity for investors to fund new infused product businesses that are out to capture market share. • Infused product consumers are price conscious and favor goods that are priced in the $15-25 range. Roughly 80% of total sales are for those products. Higher-priced products—$35-$45—account for only 2% of sales. • This is a saturated market. There are roughly 2,000 to 3,000 licensed infused product manufacturers in the U.S., according to the Marijuana Business Factbook, which underscores a need for capital that businesses can use to differentiate their products and expand into multistate operations. • Infused product makers are likely to become profitable or break even about 14 months after launching, which is faster than vertically integrated businesses and marginally slower than wholesale cultivators.