Hope or Hype? 5 Big Cannabis Industry Predictions for 2019

by | Jan 18, 2019

The cannabis industry scored some big victories in 2018, including the federal legalization of hemp and positive developments in several state legislatures. This momentum will undoubtedly be carried into 2019, but what exactly will it look like? These five cannabis industry predictions could be among the most important in the cannabis industry throughout the coming year.

Legalization will drive hemp-derived CBD growth

While cannabis is still federally illegal, industrial hemp begins 2019 with a freshly legal status. While states will still be in the process of writing regulations and the FDA will manage federal oversight, removing the barriers of prohibition will foster an explosion in the hemp-derived Cannabidiol (CBD) sector.

The Brightfield Group projects that the industrial hemp-derived CBD market will be worth $5.7 billion in 2019 as a direct result of federal legalization under the Farm Bill. The market research organization estimates that growth will continue in the coming years, reaching a market value of $22 billion by 2022. Of course, that’s to say nothing of the myriad other products made from hemp, including textiles, paper and biofuels. In the wake of the Farm Bill, 2019 will be the year of hemp-derived CBD.

Nine states could legalize adult-use cannabis

Cannabis has come a long way already: it is medicinally legal in 33 states and legal for adult use in 10 states. Not only that, but it’s more popular than ever among the voting public. More than 66 percent of Americans now support federal cannabis legalization, giving political cover to state legislatures and governors that were previously on the fence.

According to Marijuana Moment, the wire service run by legalization advocate Tom Angell, the states most likely to legalize adult-use cannabis include Connecticut, Illinois, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode Island and Vermont (Vermont legalized cannabis in 2018 but has not yet OK’d the sale of cannabis products.) Several other states are considering ballot referendums to legalize or expand medical cannabis programs as well.

Naturally, the creation of new adult-use markets would spur additional growth in the cannabis industry. Depending on which new markets come online, the cannabis industry is projected to reach anywhere between $24 billion and $44 billion in market value by 2020, according to Marijuana Business Daily. And we’re calling it now: our home state of New Jersey is going to kick things off by becoming the first state to legalize adult-use cannabis in 2019.

Mergers and acquisitions will increase

Loosening regulations and the expansion of the legalization movement means big money that had been hesitant to jump into the cannabis industry will finally be unleashed in 2019. We’ve already seen the start of it. In 2018, cannabis firms raised more than $13.8 billion across 300 deals, a more than $10 billion increase over 2017, according to Viridian Capital Advisors. More deals and vastly more value signals that the industry is ready to go through a serious period of consolidation.

The changing tide in the U.S. is going to drive similar activity nationwide. Big business in industries including tobacco, pharmaceuticals and food will start investing heavily in the cannabis industry as regulatory concerns subside. The flood of corporate money is going to drive an increase in mergers and acquisitions in the small, fragmented cannabis industry.

Multi-state operators are already laying the groundwork for an ultimate repeal of cannabis prohibition at the federal level, at which point they can begin to sell their products across state lines. Big businesses have the capital at their disposal to establish this kind of infrastructure and should be expected to deploy it in 2019 to snap up some choice cannabis businesses from entrepreneurs that are ready to cash out.

Value-added products will continue to eat into flower’s market share

For the time being, bud is king, but it seems that era is swiftly coming to an end. Flower’s market share has been declining in virtually every market as value-added products, such as concentrates and edibles, become increasingly popular. For example, in Oregon, sales of flower decreased by 10 percent from Q1 2017 to Q1 2018. At the same time, the sale of concentrates and edibles grew by 6 percent and 5 percent, respectively. Since Colorado’s legalization of adult-use in 2014, sales of flower have plummeted by 23 percent. This trend will only continue as consumers become more educated and more sophisticated producers come online.

According to research from the Arcview Group and BDS Analytics, edibles are expected to account for $4 billion in the cannabis industry’s market value by 2022. Concentrates are growing even more quickly, projected to jump from $3 billion in market value last year to $8.5 billion by 2022. As more consumers become privy to value-added products and the methods for processing raw cannabis into concentrates, edibles, topicals and more become more sophisticated, we only expect to see the market share of these products increase relative to flower.

Serious debate on legalization will begin in Congress

Less than 24 hours into the 116th U.S. Congress, a bipartisan bill that would federally legalize medical marijuana was introduced by Reps. Steve Cohen (D-TN) and Don Young (R-AK). The CARERS Act, as the bill is known, was introduced in two previous sessions of Congress as well, but this time there is more widespread acceptance according to Cohen, who said there is a national and bipartisan consensus that medical marijuana should be legalized.

There is potential support for federal cannabis reform from the White House as well. According to outgoing Rep. Dana Rohrabacher (R-CA), who is responsible in part for the Rohrabacher-Farr amendment that prevents the use of federal funds from interfering with state-compliant cannabis businesses, the Trump administration has eyed the legalization of medical marijuana as a post-midterm election priority. Adult-use regulations, Rohrabacher said, would likely be left up to the states.

Beyond legalization, there were several bills in Congress last year intended to address obstacles to the legal cannabis industry resulting from the federal prohibition. For example, the SAFE Banking Act would offer protection to financial institutions working with legally compliant cannabis businesses. Such a law would help ameliorate fear and uncertainty among banks, which are often hesitant to work with any cannabis businesses. There was also the Small Business Tax Equity Act, which would allow cannabis businesses to take the same kinds of tax deductions as other companies. Expect renewed discussion about these types of measures amidst talk of legalization as well.

2019 is the year the cannabis industry turns a corner

The cannabis industry still faces some significant challenges, mostly related to the ongoing federal prohibition of the plant. While the legalization of industrial hemp means CBD products and other hemp-derived goods will buoy the industry, cannabis businesses must still reckon with a lack of interstate commerce, restricted access to banking, and onerous advertising rules that make marketing tricky. However, as time goes on the stigma against cannabis becomes more antiquated. Public policy always follows popular sentiment and the tide has shifted in favor of cannabis. If these cannabis industry predictions are correct, 2019 will hold big victories for the cannabis industry and the legalization movement in the U.S.