The Covid years have been very good for the cannabis industry. According to BDSA, global legal cannabis sales in 2020 were 45% higher than in 2019 and several leading cannabis companies reported triple-digit growth in revenues in 2020 over 2019. These included Trulieve Cannabis, Curaleaf, Verano, Cresco Labs, Green Thumb Industries, and TerrAscend. Moreover, the healthy prospects of the global cannabis market were reflected in the M&A activity of 2021. Two deals pertaining to the cannabis industry—Jazz Pharmaceutical’s acquisition of GW Pharmaceutical and Trulieve Cannabis’ acquisition of Harvest Health & Recreation—had multi-billion-dollar valuations.
Two themes have driven the growth of the cannabis market during the pandemic. The first is the growing desire among consumers for products that enhanced their health and wellness. The second is the continued legalization of medical and non-medical cannabis, especially in the US.
The pandemic exacerbated concerns about health and wellness
During the pandemic, consumers were understandably more concerned about their health and wellbeing than they had been before. Not only did Covid-19 directly threaten consumers’ physical health, but the social distancing measures implemented to limit the spread of Covid-19 forced consumers to remain indoors and refrain from socializing with friends and family in person. These measures threatened consumers’ mental health and GlobalData’s Consumer Survey for Q1 2021 reflects this.
The survey showed that 26% of consumers were quite concerned about a product’s impact on their health/wellness, and 38% were extremely concerned. GlobalData’s Consumer Survey for Q1 2022 shows that very little has changed a year later. The survey shows that 32% of consumers are often influenced in their product choice by how the product impacts their health and wellbeing, and 34% are always influenced.
The growing influence health and wellness concerns have on consumer purchases is also reflected in the M&A activity in the consumer goods sector in 2021. In its report ‘Global M&A Deals in 2021 – Top Themes in the Consumer Goods Sector’, GlobalData identified health and wellness as the second most important theme driving M&A activity in the consumer goods sector.
Cannabis products can address consumers’ health and wellness concerns
Many cannabis products align with the three key consumer preferences that are driving the health and wellness trend, as identified in GlobalData’s 2021 TrendSights analysis report on health and wellness. First, consumers’ concerns regarding mental well-being, which has been hit hard by the pandemic. Second, consumers’ desire for natural products is growing as improved access to information enables consumers to become more informed about their personal health and wellbeing. Third is the growing preference among consumers for plant-based alternatives, to which health concerns contribute.
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Cannabidiol (CBD) is one cannabis product that ticks all three of these boxes. CBD claims to alleviate anxiety and stress and improve sleep. Moreover, CBD is non-psychoactive—that is, CBD does not directly bind with the cannabinoid receptors in the brain in the same way that tetrahydrocannabinol (THC) does. Therefore, CBD does not cause the high that THC does. As a result, CBD, as typically advertised, can improve consumers’ mental health and wellbeing without chemically intoxicating consumers the way smoked cannabis does. Coupled with the fact that CBD is a plant-based product and not usually produced synthetically, CBD meets all the relevant criteria to appeal to health and wellbeing-conscious consumers.
Legalization is spreading
Furthermore, non-medical use of cannabis was legalized in more regions in 2020 and 2021, expanding the legal cannabis industry’s customer base. Several US states legalized recreational cannabis use in this period, including Arizona, Montana, New York, Connecticut, New Mexico, and Virginia. Illinois legalized recreational cannabis use in 2019, but this legislation only came into effect in 2020. BDSA points out that legal cannabis sales in the US grew 46% in 2020 and cites new adult-use markets in the US as a reason for this growth. Outside the US, Malta legalized recreational cannabis in late 2021.
Will cannabis industry growth continue?
As mentioned above, GlobalData’s Consumer Survey for Q1 2022 shows that concerns about health and wellness remain as influential as they were a year before. In the US, the legalization of recreational cannabis gradually spread throughout the 2010s and continues to do so. Germany’s new chancellor Olaf Schultz has expressed ambitions to legalize recreational cannabis, and the legalization of recreational cannabis was delayed in Luxembourg in 2021 only because of Covid-19.
In short, the regulatory trends and changing consumer preferences that have thus far driven the cannabis industry’s recent growth show no signs of abating. Recent M&A activity suggests that this is not lost on either cannabis companies or the consumer goods sector in general. After all, three of the ten most valuable M&A deals of Q1 2022 in the consumer goods sector were acquisitions of cannabis companies. One of these deals, Cresco Labs’ acquisition of Colombia Care, was valued at $2 billion.