How Do We Measure the Statistical Significance of Legal Cannabis?
Advocates, investors and entrepreneurs believe that the profile of marijuana users will change now that cannabis is legal. They all have one thing in common -- wanting to make money from the new cannabis consumer.
Many of the cannapreneurs I’ve spoken with are hopeful that new business data will enable the industry to monitor the change in the color, age and socio-economic background of cannabis users. That’s not necessarily the case.
Beyond all the speculation, there are also some undeniable realities that have to be factored in.
Facts are facts
Cannabis has been legalized for adult use in four more states, but the overall sample size is still small. That alone makes most generalizations about the market sketchy at best.
Trying to nail down real numbers on an illegal market is tough. Nevertheless, limited research suggests that marijuana consumers fall into the following groups:
- According to the National Institute of Drug Abuse, “most measures of marijuana use by 8th-, 10th-, and 12th-graders have held steady in the past few years following several years of increase in the previous decade.”
- German Lopez, writing for Vox, says, “contrary to some stereotypes, college graduates account for around 17 percent of marijuana use, although they make up about 29 percent of the adult population.”
- Lopez continues to quote Stanford’s Keith Humphreys who says, “marijuana use very much mirrors tobacco use: it's clustered among lower social classes.”
- That leaves 47 percent of the market dominated by adults without college educations.
Among the problems is that the numbers depend on self-disclosure. As a result, it's very possible there will be some users denying it, and others exaggerating or minimizing their use.
The Colorado model
Colorado’s sales taxes for 2015 represent a picture of the future that looks as follows:
- 73.7 percent increase of Total Marijuana Tax Transfers and Distributions including a 76.3 percent increase on Retail Marijuana sales.
- 4.2 percent increase in License and Application Fees
Mike Elliott, the executive director of the Marijuana Industry Group, takes the position that, “Coloradans are proving they prefer to buy cannabis from the regulated, legal industry rather than the black market.” And, these numbers would make that case.
On the other hand, the legal market will stratify customers. For example, supply and demand will set prices in time, but the tax structure adds local sales tax, special sales tax and excise taxes. In a Denver Post article it was stated that, “All together, that’s nearly 29 percent.”
NPR observes, “With recreational marijuana use now legal in Colorado, marijuana businesses are finding themselves competing for customers in tight marketplaces.” They have recognized the potential among the middle-class and upper-middle class where it might be possible to make marijuana as fashionable as wine tasting. That market segment would be consistent with the pricing, and it would compete with the stoner image long associated with consumption.
Broadly mainstreaming and destigmatizing the use of cannabis really begins with evolving behavior and priorities on the supply, more than the demand, side of the market. "Until cannabis-based enterprises commit to professionalizing their operations -- the most existentially crucial imperative of which is maintaining regulatory compliance -- it will be more difficult to establish the levels of consumer trust and confidence characteristic of more mature and conventional industries," assesses Sturges Karban, CEO and board member of MJIC, a cannabis business strategy and investment firm. "This, in turn, can only encumber the explosive growth we've experienced recently, rendering the market more a "marketplace" than a fully-formed industry."
Cannabis quality as part of product marketing
There is some hope that the marketing style will attract those who have been indecisive. If it promises a quality product and supervised seed-to-sales purity, it could lose the taint of the street dealer.
I think this only happens when we begin as an industry collectively agree upon a consistent branding and awareness approach and until we discontinue calling cannabis anything else. Calling it marijuana not only devalues the impact cannabis has in branding, but also for creating new profit centers in business, state and local governments.
"The greatest opportunity for normalization of cannabis consumption is to raise the standard of branding, marketing, and communications in the cannabis industry," remarks Krista Whitley, CEO of Social Media Unicorn. "I have great hope that as the industry grows established and new brands will raise the bar for all aspects, so premium cannabis brands begin to reflect the polish of premium brands other industries are known for."
The real task will be to get the buy in. But I believe in this market if we all desire to see sustainability then we will agree this is strategic part of the awareness in the community is crucial to any forecasting of longevity as traction is gained in this space.
In addition, we need to be more precise about cannabis, following the Colorado model across each state. To the point where we are able to determine origins and destinations, and verification of patient identification for patient health and safety by delivering the prescribed medication without misidentification, or human error, we stamp every part of the process.
Every day in California, cannabis makes it's way to the shelves of our dispensaries without the consumer truly knowing where it came from, how it was grown or what contaminants it may contain. Some dispensaries require pesticide and microbial testing, but this is due to their own good business practices rather than state requirement. Historically, all lab testing has been done for potency and used primarily for marketing purposes, instead of health and safety.
Now, all of this will change with the passing of the Medical Marijuana and Safety Act (MMRSA) and the Adult Use Marijuana Act (AUMA). Written into both of these laws are "track and trace" programs that require all businesses to use a unique identifier, such as a batch and lot number or bar code, to identify and track medical cannabis and its products.
Many industries use this model to create efficiency in regulatory compliance, tax accounting, and overall costs of sales, distribution, and accounting. Will those same efficiency be applicable to the cannabis industry as a whole, or will this regulated supply chain increase costs? "While all of these new procedures will incur costs, the continued drop in the wholesale price of cannabis will offset most of these costs and they will not be passed on or felt by the end consumer," predicts Matt Lee, co-founder of Jetty Extracts.
Much greater complexity and consequence are rapidly coming to define the California's regulatory framework. Failing to plan for that now will only make doing so difficult in the future. A group of industry experts and audience of eager learners are gathering in San Diego, March 5 - 8th, to discuss this very thing at the 3rd annual California Cannabis Business Expo produced by MJIC.
"All industry stakeholders need to be informed; we are only ten months from a seismic shift in the ways this industry has been governed, licensed, audited, taxed, and regulated," Karban continues. "It is in the best interest of every industry stakeholder to ensure they are fully educated and prepared for the forthcoming changes in California’s regulatory regime."
This adds increased safety and peace of mind to the old mindset. This is the only way we will see true sustainability is to have this regulated, it generates a larger target audience, and certainly establishes credibility as more are participating in cannabis use for medical reasons.
In addition, for the first time, states are capturing data, from seed to patient, this marks the beginning of true valuations, and forecasts not only for revenue, but also broken down into strain identifications, what destinations receive the greatest amount of product, So much data is coming in, this is how we can anticipate market fluctuation.
But this data is not yet entirely refined. A few more issues that complicate profiling the consumer in a state like Colorado include:
- Tourists are responsible for large percentage increases in the ski resort cities where, you might infer, the income is upscale.
- Colorado cities may ban sales, so statistics are not strictly local or qualitative.
- Sales of medical marijuana have seen increased trending generally parallel to the increases in recreational use.
What are the many faces of legal cannabis?
The numbers simply aren’t there to narrowly profile users. Despite significant increases in sales, as demonstrated in Colorado, there is not enough evidence to identify users by gender, ethnicity or social class.
While national studies have examined use and frequency, those numbers have only produced broad characteristics. And, given the numbers now available, there is no evidence of a great shift from those profiles.
If you factor in the reality that wide retail sales remain limited and controlled, there is no free market. And, if you accept how recent the legalized industry came to be, it becomes very easy to understand how difficult it is to identify anything statistically significant.
At this point, it remains to be seen what focused and well-funded marketing will do to change the faces of cannabis users.