As 2023 winds down, it’s time to take stock of where the cannabis industry is and where it may be going. While the industry has enjoyed remarkable growth, there’s plenty of room for more of the same.
In 2024, the cannabis market is expected to burgeon to a value of $63.5 billion. While there continue to be hurdles to full legalization in the USA, the outlook is changing rapidly with key federal legislation poised to transform the landscape on several important fronts.
Let’s review 5 trends in the cannabis industry in 2023 to get a better picture of where the market is going and how it’s changing, including legislative initiatives that will transform the landscape for the cannabis industry, extending to CBD & hemp flower.
1. Game-Changing Legislation
Legislation to regulate, legalize, and distribute cannabis for recreational and medical purposes is a huge and complex field. But there are several changes in the pipeline or in the process of completion which will transform the market. Some of this legislation has been in the pipeline for a decade but in 2023, there is material movement toward adoption, bringing the changes necessary for federal legalization and market reform.
Rescheduling Cannabis
While there has been a tremendous amount of anxiety in the cannabis space with respect to the painfully slow speed of rescheduling it in the Controlled Substances Act, relief may be close at hand. Commentators have been predicting continued delays but all that has changed recently. What started with President Biden’s October 2022 Executive Order on cannabis reform, directing the DoJ and HHS to review the federal classification of cannabis, is now coming to fruition.
In a report released by the Congressional Research Service on September 13, researchers have signaled the Biden administration’s willingness to reclassify cannabis, removing it from Schedule 1 of the Controlled Substances Act. The report follows last month’s call by the Department of Health and Human Services that cannabis be shifted to Schedule III (lower-risk drugs). The Drug Enforcement Agency is currently reviewing the recommendation.
The HHS recommendation is key in predicting the DEA’s response as it was an HHS recommendation in 1999 that triggered the DEA’s approval of Marinol (synthetic THC). It thus seems highly likely that cannabis will be rescheduled in the very near future. Cannabis stocks are already rallying.
HR841: CBD Meet Big Box
In the realm of CBD, HR841 continues to make waves in the halls of power. This bill, passed in 2021 (and identical in content to HR8179) may compel the Food and Drug Administration to treat CBD as it would any other dietary supplement, which would open the door to finding CBD supplements on the shelves of your local Walmart or Costco. Governing CBD marketing, the bill legalizes marketing for CBD hemp flower, CBD, and any other derivative of the plant (save THC).
But the Farm Bill of 2018 is not without its detractors, especially in terms of cannabinoid Delta 8 THC. If extracted from legal CBD plants (which contain only 0.3% THC), the substance is legal and must be treated as any other hemp flower derivative under existing law. This sets up competition between Delta 8 as a legally available hemp flower derivative and legal cannabis. Over the past year, a raft of weed-legal states have responded with legislation to limit the distribution of hemp flower-derived Delta 8.
The problem is inherent in the wording of HR841 itself, which is broad, allowing Delta 8 to fall under the rubric of hemp flower-derived substances, regardless of its intoxicating effect. The result is confusion in the states as they attempt to produce legislation to control the proliferation of mom-and-pop producers.
Regulation of Delta 8 products is on the horizon, bringing clarity to the confusion created by the legislation. It’s hoped that this move will put an end to hospitalizations and other unforeseen consequences of Delta 8’s popularity with consumers.
So, while HR841 has catapulted CBD products to the status of supplements, there is still work to be done to ensure consumer awareness of the nature of some components of the plant, including Delta 8. But if you see these supplements show up at your local big box, you’ll know why!
SAFE Banking Act
The Secure and Fair Enforcement Banking Act is another legislative project that is hiccupping through the system. Now passed 5 times in the House since its introduction in 2013, the bill finally passed in the fall of 2021 as part of a National Defence Authorization Act.
With strong bipartisan support through three presidential administrations, commentators are at a loss to understand why this legislation stalls before hitting the big desk in the Oval Office. Protecting banks that support accounts for state-legal cannabis businesses from federal regulators, proponents are now poised to finally usher it over the finish line. SAFE is now on the precipice of adoption, with the impending rescheduling of cannabis in the CSA.
Representative Ed Perlmutter (D-CO), who introduced the bill in 2013 and continues to champion it, stated in 2021 that the bill’s passage and implementation was a “…public safety and a national security matter”, citing the possible incursion of cartels and other bad actors in the absence of stabilizing (and legitimizing) legislation. Passed in 2019, then stalled in the Senate, SAFE’s passage hinges on DEA approval of cannabis rescheduling. 2024 may finally be the year that cannabis businesses can join the ranks of legitimate businesses, gaining the right to use the services of banks.
2. Structural Change: The Illegal Cannabis Challenge
With the advent of legal weed, it was never anticipated that the illicit variety would simply disappear from the market. And it has not. In fact, illegal cannabis is now challenging the integrity and ongoing economic health of legal operators.
The impact on pricing and the vagaries of a hybrid market have made it increasingly difficult for cannabis companies not to respond with lower prices. With the illegal market robustly challenging the legal one, producers are also finding it difficult to balance supply with demand.
As a consequence, producers are realigning and reconfiguring. The pandemic has much to do with these changes, as producers saw demand rise sharply. But once the crisis had subsided, demand subsided as well, leaving cannabis growers with more raw flower than they expected to have in stock. Some producers have simply shuttered their operations, unable to withstand the challenges of social volatility, coupled with downward pressure on pricing.
Producers in early-adopting states have watched their profit margins decline, as market growth has slowed, while in late-adopting states, the situation is reversed. As a result, large operators are seeking consolidation and have been since 2020.
But reviewing legislation in the pipeline and the changes these regulatory efforts will bring, the outlook continues to brighten. With the advent of rescheduling and SAFE’s improved prospects as a result of that change, the trend to consolidation will slow. Federal roadblocks being removed will also ease interstate complexities for cannabis distribution, arising from the patchwork of laws in existence from state to state.
3. Market Trends
As the market matures, the cannabis consumer is becoming increasingly sophisticated. This maturation revolves around the consumer’s ability to discern quality, purity, and applications for cannabis more fully. There are important shifts in the demographic makeup of the cannabis market, the applications of cannabis and hemp flower products preferred by consumers, and the content of products related to extraction processes.
CBD in the Fitness Space
The value of CBD for people who lead active lifestyles, professional or amateur athletes, or who pursue fitness as a lifestyle, has been known for some time. But adoption by this sector is picking up, with fitness enthusiasts and athletes discovering the numerous benefits of CBD for muscle recovery, inflammation, and aching joints.
Individual athletes are using and benefiting from CBD, but professional sports leagues are also examining the power of CBD products, especially for sports recovery. In early 2022, the NFL commissioned a formal study on the effect of cannabis and CBD on pain management. The NBA has ceased performing random tests for cannabis use.
But as federal legalization rapidly becomes a reality, it’s clear that the eradication of this legal hurdle will inform the actions of leagues with respect to CBD and cannabis use by players. With the ball already rolling toward wider acceptance in the sports world, federal reform is poised to change the game.
The Seniors Are Coming!
Many of today’s seniors are long-time cannabis enthusiasts. What Grandpa and Grandpa did in their youth is what they now do in their senior years. But now, this same cohort has discovered the estimable benefits of CBD. In a world of costly prescription drugs which often come with material side effects, seniors are turning to CBD to sustain their wellness as they age.
CBD is often associated with cannabis, despite its low THC content. But with stigma beginning to fall away and the price and side effects of pharmaceutical options often untenable, seniors are becoming a trending demographic that broadens the market considerably. Seniors are now 16.5% of the population with their demographic presence growing yearly.
Remedy Reviews’ recent study found that 51% of seniors reported a better quality of life with cannabis. And that’s not all. 89% of seniors in the same study said they’d recommend CBD to others. While only 9% of seniors have tried CBD, their enthusiasm for CBD and their confidence in using it to support better health promises tremendous growth for the substance among this demographic. And once cannabis is rescheduled, it’s anticipated that many more seniors will be more willing to discover the benefits of CBD.
4. Product Trends
The cannabis market is crowded with products of varying purity and quality. When an industry suddenly burgeons from nothing, practices that undermine quality and purity can sometimes creep in. Such is the case with cannabis. But that’s changing, as consumer awareness drives reform in extraction practices.
Solvent-free Extracts
A growing trend in cannabis this year is a consumer demand for solvent-free cannabis derivatives. As I’ve noted above, cannabis consumers are becoming increasingly sophisticated and with that sophistication come questions.
Solvents are used in cannabis extraction by large-scale producers. Solvents used are varied and include butane, carbon dioxide, propane, and similar materials. While these materials are purged by heat (ostensibly), many consumers desire a solvent-free product, which has given rise to a new corner of the market. Because the truth is that the type of solvent used can impact the quality of the final product.
So, why are solvents used? Principally, more product is extracted efficiently and cost-effectively. While solvent-based extraction may support a business model, solvents aren’t friendly to the environment and may represent a risk to human health at the production level. Consumers know this and so solvent-free extracts are a growing trend that will continue into 2024.
Minor Cannabinoids in the Spotlight
For some time, CBD and THC have been the sole focus of cannabis marketing efforts. But that’s changing. In 2023, the focus shifted rapidly toward some of the less well-known cannabinoids. While these have been explored and researched for some time, minor cannabinoids are now impacting consumer consciousness. Broad spectrum product offerings will grow in prominence, as the market adjusts to feature cannabinoids like THCV, CBC, and others consumers aren’t yet well-acquainted with.
And you’ll be hearing much more about the variety of cannabinoids present in cannabis and hemp flower, with the market for these projected to triple by 2028.
5. A More Perfect Union
After years of uncertainty and gradual adoption at the state level, the USA now stands ready for federal legalization, as the DEA deliberates on rescheduling cannabis. This single factor is, of all you’ve just read, the most significant. With cannabis rescheduled to Schedule III of the CSA, SAFE is likely to finally become law, freeing businesses in the sector to thrive, all unnecessary stigma having been legislatively cleared. A cumbersome patchwork of state laws will no longer stand in the way of the conduct of business with the advent of cannabis finally being federally legal.
CBD will continue to be normalized and science will continue to render new and better ways of presenting the fruits of the cannabis and hemp plants to consumers. Minor cannabinoids will rise in prominence and research will render new information about them in greater detail. The market will change and grow as research reveals new applications.
While many of these trends have been in formation for years, 2024 promises to be incredibly significant for the industry in the USA. Never was a union more perfect than one legislatively aligned with the will of the people. Now, we await the DEA’s agreement for rescheduling, which will allow cannabis to come to its full potential.