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We will be sharing our regular BDS Analytics monthly review of cannabis purchasing trends across key markets in the coming days, but the data for March is on the edge of a transition from business as usual to one of rapidly evolving change. Some radical near-term changes are clear in the data, but it’s challenging to predict how future demand trends will evolve as a result of the health and economic crises.
From a macro level, it would seem demand for cannabis will be relatively strong, similar to other categories like alcohol, coffee, medicine and tobacco have been historically during times of economic weakness. We expect many new consumers may try cannabis products to help cope with anxiety and sleep issues. At the same time, the enormity of the economic collapse may threaten consumption to some degree. We think that many consumers may trade down, choosing value brands.
At the product level, we expect the joint may be a victim of COVID-19, as sharing cannabis with others in this manner has become a health hazard. Across the board, pre-roll sales plunged in March. Vaporization of dry flower and vape pens will likely see additional demand, but the real winner could be edibles, especially in a world that continues to embrace social distancing and more time at home.
Perhaps more important than these macro trends to operators and investors, though, is what is going on in the individual state markets. As we highlighted a couple of weeks ago when we discussed some silver linings, curbside pickup and delivery options have become more prevalent, and we think this is going to be a major driver of growth. Consumers like the convenience of ordering online, and this levels the market in our view. In fact, legal cannabis operators may gain an edge on the illicit market with the ability to sell online.
We have written previously that we expect a delay initially in state legalization efforts but also a likely strong adoption rate as states combat falling tax revenue, higher expenses and high rates of unemployment. These same pressures could help move cities and counties to take a friendlier approach to retail cannabis. With less spending at bars and restaurants, local governments will be hungry for tax revenue. Not-in-my-backyard has been a massive problem in California, and the addition of more retail access in that state would be a major growth driver.
Certain markets will be extremely pressured. As we have discussed, the challenges in Nevada are likely to persist, as tourism will probably be depressed for quite some time. Massachusetts shut down adult-use, and this will weigh heavily on the growth in that state, with some adult-use customers getting medical cards as an offset.
We caution investors not to extrapolate what was very strong data in most markets in March, as much of this was driven by stocking up. Still, we believe the demand for cannabis is likely to be robust. Better access will offset some of the challenges like less disposable income.
Named the largest brand in the California edibles market in 2019, according to BDS Analytics, Plus Products has a strong cash position to execute through the entirety of 2020 without any additional fundraising according to recent company guidance. Edibles continue to remain attractive with price premiums remaining constant while other categories continue to see significant price degradation. The company currently consists of two brands, with a third expect to launch before the end of Q2.
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