Cannabis 3.0?

by Eric Vengroff, Financial Analyst, Cannabis Daily

People who have been involved in various aspects of the cannabis industry recently all seem to have one observation in common.  Things are moving at an incredible pace.  To the many of us exposed to personal computing and technology a long time too (another very fast-paced growth industry), the concept of ‘version control’ is not unfamiliar.  I remember first version of Windows 1.1.  Minor hardware and software changes are typically given ‘decimal’ version upgrade numbers, and major revisions always had a zero following the increase number…2.0, 3.0 and on. Windows 8.1 was perhaps a notable outlier.

The cannabis industry doesn’t have a single point of authorship, so no version control, in the traditional sense may be possible.  However, there are no shortage of experts and prognosticators who are prepared to offer their view of the state of play as they observe the ‘big upgrades’ (ie. the ones that end in a ‘point oh’) that are in motion around the world.  Such was the case at #MJBizCon in Las Vegas last week.  Torsten Kuenzlen, CEO of Alberta-based Sundial Growers, travelled south from the land of ‘oil and grass’ as he described it, and presented his thoughts and advice on cannabis of he past, present and future.

We all know about plants that are hazardous to handle, such as a cactus, or plants that are toxic, such as curare, but it seems odd that a plant with a 12,000-year history of human use could ever be deemed illegal.  However; that was an is the case for most of the world.  From that perspective, countries such as Canada know the three historic stages of cannabis; legal – illegal – legal. Legal for 11,900 years, illegal for about 100 years, legal again for one month.    Kuenzlen sliced the history a little differently.

Cannabis 1.0 – Pre-Colorado

Cannabis 2.0 – Now

Cannabis 3.0 – The Future

In the Cannabis 1.0 days, we in the tech space saw analogs to what is happening in the cannabis space today.  One of the most celebrated examples was the case of AOL, or America Online.  Yes, the company that used to hand out those little CD’s at the grocery stores in 1995 bought Time Warner in 2000, a mere five years, the latter being a company that originated 78 years earlier.  Don’t see the parallel?  Ok, try this…Coca Cola, a company where Kuenzlen worked for many years, a company started in 1892 that has not shown any growth for 20 years was rumored to be sniffing at Aurora Cannabis Inc., a company started five years ago which only a few months ago was worth about the same on paper.   Tilray Inc., started about the same time, was worth more than Molson Coors, a 232-year-old company that itself entered into a joint venture with Hexo, Inc., another cannabis LP earlier this year.  To be fair, some of the values of these companies have been compressed of late, as disappointing earnings in the early days fulfill dreaded expectations, but that too is almost a direct parallel to the early tech bubble and subsequent bust.

In the mind of Kuenzlen, legalization in Canada has had some clear benefits that outweigh the risks, including economic growth and increasing professionalization within the industry.  There are many aspects of the business that are not working, such as supply shortages, lack of available research and research facilities, inconsistent quality and quantity and a focus on short-term profitability. These issues may take years, if not decades to remedy.

With great abbreviation of the various concepts discussed, this all points to Cannabis 3.0, the future, the next major revision.  In this upgrade, we start losing some of the image and associated negative impressions of the product, currently carrying names such as ‘Cat Piss’ and ‘Purple Monkey Balls’, examples bad naming conventions provided.  With increasing sophistication in the marketplace, consumers will demand that more attention be paid to brands, formats, and channels of communication for consumer information and more.  A pop quiz listing of names that included Cavendish, Dokha, and Criollo was offered.  What are these strain names? The answer is ‘tobacco’.  The follow-up question is ‘who cares?’  The answer to that is by and large, no one.  The product is cured, rolled up, packaged and called a Marlboro -finished.  He predicts this will be the way of the future with cannabis.  Indica, Sativa, Hybrid, whatever.  For the vast majority of recreational cannabis consumers, the solution will be to roll it up and smoke it -or not.  Put it in a drink, gummy, or other chosen format.  The brand, packaging, and consumer experience will be what matters.  I’ve heard this argument put in similar fashion by others and believe the market could dictate brand preference in this way.

On the other hand, Kuenzlen also believes that the quality vs. quantity must also balance out along a broader continuum of product.  This table sets out the difference and the logic.

Version Economy Good Better Best Craft
Cannabis 2.0 (Now)   $4.00/gm $4.50/gm $5.00/gm  
Cannabis 3.0

(The Future)

$4.00/gm $5.00/gm $7.00/gm $9.00/gm $10.00/gm+
Prices are avg. (US$)          

 

Since he was talking to an American audience, by and large, I assume the prices are US$, although I would not see them moving too much from these levels, nominally in Canadian dollars.  Does this seem optimistic to you? Especially in light of the recent compression of stock price multiples and the proliferation of the illicit market?  He estimates the market at $2 trillion, globally by 2050; that should be reason enough for optimism, broadly, although no doubt there will be casualties and road kill (represented in my generation by a sock puppet that looked like a dog).

Passing alcohol sales in every market where it is being legalized day by day and may pass soda as early as 2030.  I can tell you someone has a reason to be happy.  It will be interesting to see if this industry insider’s bold predictions come true.

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