Recreational and medical cannabis packaging poised for growth

Despite being controversial, the U.S.

cannabis industry is growing rapidly.

With a product that is quasi-legal, the industry faces

many uncertainties regarding its future direction. At the

same time, the speed at which the industry is growing

leaves companies struggling to keep up with demand as

well as the frequent changes common to any nascent

industry.

The complexities can seem daunting.

Yet the upsides are often worth the risk, and many

cannabis producers are rising to the task of balancing

stringent regulations, rising consumer demand, and

shifting market landscapes.

The cannabis industry shares many similarities to the

pharmaceutical, cosmetic and food & beverage

industries but must also address unique needs and

challenges.

Cannabis companies and their ancillary partners have

to be innovative and flexible to keep up with the fast

pace of change.

Market Growth – Booming

The U.S. cannabis industry is booming despite its inconsistent legal status.

In the past five years, the industry has grown over 200% as more states

began legalizing some marijuana use for medical purposes. This has

prompted an influx of business startups and has helped legitimize mari-

juana use in the eyes of many. Last year, the industry topped $7.3 billion

– a 35% growth over 2015 – which is higher than the dot com and broad-

band booms and which many believe is conservative. Indeed, industry

experts see this pace of growth continuing over the next five years.

Market Growth – Breaking it Down

Currently, 65% of cannabis sales stem from medical marijuana, which is

legalized to various degrees in 29 states with legislation pending in 15

more. However, recreational or adult use of cannabis (legal in nine states

but only in effect in five currently) is fast growing. It usually outpaces

medical sales by a 15:1 margin the first few years it becomes available.

Nevada, the latest state to legalize recreational use, expects to see 20:1

or higher sales of recreational cannabis due to the state’s high tourism

volume. Experts believe that by 2021 every state in the U.S. will have

legalized cannabis for medical use and that sales of medical marijuana

will top $15 billion at that point. An additional six states are expected to

permit recreational cannabis sales in the next two years.

As sales are growing rapidly, the formats are shifting away from can-

nabis as a flower/bud into more processed formats of oils, edibles, and

topical products. This provides an opportunity for ancillary businesses

(e.g., packaging) to grow and expand within the industry as well. Current

estimates put the cannabis packaging market at less than 1% of indus-

try sales at $15 million. However, experts believe the pace of growth for

packaging may eclipse the growth rate of the overall cannabis market as

legalization spreads to more states, packaging becomes more regulated,

and cannabis brands move towards higher-end and more customized

packaging options. When sales were under $5 billion, most packaging

companies were not willing to invest in creating products specifically for

the cannabis industry, preferring instead to borrow and adapt packaging

products from other industries such as pharmaceuticals and cosmetics.

Now, however, with cannabis sales approaching $10 billion, firms are

finding it worthwhile to develop products specifically designed for the

unique needs of cannabis companies.