Which Cannabis Products Will Reign Supreme?
Guest post by Greg Kunin, founder and Chief Product Officer of CTH
The boom has only just begun.
As the ability to legally purchase and consume cannabis has become more and more widespread in the United States, sales of recreational cannabis have skyrocketed from $351M in 2014 to $11.6 Billion in 2020¹. And this trend shows no signs of stopping.
Unsurprisingly, the explosion in cannabis sales has brought forth a host of players looking to get in on the action. As of 2020 there were more than 2,500 recreational cannabis brands fighting for a piece of the pie². And while it’s a very big pie, it’s not infinite, and many of those 2,500 brands won’t stay in the fight for very long.
Which brands will rule tomorrow’s recreational cannabis market? It’s impossible to predict right now. The field is too crowded, the future too uncertain. But if we look at the current inhalable product landscape, and the challenges those products will face from a business, regulatory, and adult consumer perspective, we can begin to get an idea, and possibly even start placing our bets.
Learning a lesson from e-nicotine.
Innovating isn’t easy under the best conditions. It becomes considerably more challenging in a highly regulated environment. Not only do you need to create a product that is both appealing to consumers and highly scalable, but you also need to proactively prepare to justify every aspect of that product to the regulator.
And while cannabis is not yet federally regulated, it’s safe to assume that federal legalization, when it comes, will arrive bundled with a fair amount federal regulation. This puts the current adult-use cannabis market in a very similar place to where the e-nicotine market was just a few years ago.
Electronic cigarettes were first introduced in 2007. The market grew rapidly, just like today’s adult-use cannabis market. By 2016, more than five generations of technology had been developed, e-vapor brands and vape stores were everywhere, and business was booming. Then, on August 8, 2016, the Deeming Rule went into effect, extending the FDA’s tobacco product authority to Electronic Nicotine Delivery Systems, including e-liquids and vapor devices³.
This, of course, changed everything.
Existing products were allowed to remain on the market—but only so long as complete pre-market applications were submitted by an established deadline. Meanwhile, new products could not be legally introduced unless they obtained FDA authorization. Products that will not obtain FDA authorization will be regarded as illegal and removed from the market.
As of 2020, the FDA had received over 150K⁴ applications, but only three companies were able to obtain market authorization for their products: Philip Morris International, Swedish Match and 22nd Century Group⁵.
The lesson here is clear: Just like with e-nicotine, federal regulations will likely “reset” the cannabis industry in the very same manner. Any cannabis product that hopes to survive needs to be ready for that moment when it comes. And like it or not, it will come.
The current inhalable product landscape.
When we look at the inhalable product landscape from an adult consumer perspective, we find a plethora of options in terms of cannabis strains and effects. But in terms of delivery systems for consumption, the options are surprisingly limited.
Smoking: the Model T of cannabis?
The Ford Model T is an undisputed icon of the automotive industry. Large enough for the family, but small enough for the individual to handle easily, all at a price that made travel affordable to the middle-class, the Model T was a huge success for many years. Perhaps because of this success, Henry Ford believed that the Model T was all the car a person would, or could, ever need. He was wrong.
Eventually, other companies began offering comfort and styling advantages at competitive prices, and the Model T steadily lost market share, until on May 26, 1927, Henry Ford and his son Edsel drove the last Model T out of the factory. As it turned out, consumers did, in fact, want more than the old Model T could deliver.
In many ways, smoking is the model T of cannabis. Smoking is tried and true, and has been around for years. Familiar and relatively easy to produce and sell, flower and pre-rolls remain the most commonly available forms of cannabis consumption. In Colorado, a state that legalized adult-use nearly a decade ago, flower and pre-rolls still account for more than 50% of the market⁶. The situation is more or less the same in California⁷ and in Massachusetts, they account for more than 60% of the adult-use market⁸.
But while today flower and pre-rolls are a major force in the industry, differentiation and brand loyalty will become increasingly critical business challenges, as will the social friction associated with smoking. And then there’s this: In 2018, then-FDA Commissioner Scott Gottlieb said, “It’s primarily the combustion, which releases thousands of harmful constituents into the body at dangerous levels, that kills people.” When you consider all of these issues, it’s hard to believe that getting a combustible product through the FDA will be a smooth ride.
Vaping: a crowded field with little innovation.
Vaping presents an interesting study. Although there are about 200 vapor brands⁹ in the adult-use cannabis space, almost all of them use the same off-the-shelf technology. The names and liquids are different, but the delivery system is exactly the same.
So, while cannabis vape pens are growing in popularity, it will take major innovation on the hardware side in terms of creating new and unique delivery systems for brands to set themselves apart from the competition. Another big challenge for this segment is that up until recently, vaping was mostly associated with nicotine products and the epidemic of youth vaping¹⁰. Any vape brand must seriously take this into consideration when developing new products and proactively make sure they do not appeal to underage users.
Vaporizers: innovative and open—potentially too open.
Vaporizers use a more innovative technology and provide a more authentic experience, but they cost more. Still, the biggest challenge with vaporizers isn’t price. It’s the fact that they are open systems, where the user is in charge of filling the device.
On the one hand, this gives the user more freedom of choice, which is a big selling point for vaporizers. On the other hand, these devices need to be frequently cleaned by the user, which is a drawback. Regardless, vaporizers have one glaring weakness when viewed from a business perspective—all the revenue from the consumables, whether they be cannabis flower or concentrates, goes to someone else.
What will tomorrow bring?
The emerging cannabis industry is still evolving, but one thing is for certain: Cannabis will become one of the largest CPG categories worldwide.
What is still unclear is which product, if any, will pull ahead as the clear market leader for the foreseeable future. Each of the product segments we’ve looked at have their strengths and weaknesses. And perhaps a totally new product will come along that completely changes the game.
Regardless, any brand hoping to compete for the long term will have to be operating at the highest level, not just in terms of supply chain and distribution, but also in terms of their products, their value propositions, and their ability to meet the growing expectations of the adult cannabis consumer, as well as any future regulatory requirements.
Product innovation will play a big role, but not the only role. The winner of this race will have to meet all of these challenges head-on. It will be exciting to watch.
¹New Frontier Data: Sales of legal cannabis in the United States from 2016 to 2025.
²Nielsen: Number of cannabis brands in the United States from 2014 to 2018.
³The Office of the Federal Register: Deeming Tobacco Products To Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Restrictions on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products. A Rule by the Food and Drug Administration on 05/10/2016.
⁴The U.S. Department of Health & Human Services: Cumulative number of Premarket Tobacco Product Applications (PMTA) received since Program Inception.
⁵U.S. Food and Drug Administration: Premarket Tobacco Product Marketing Orders.
⁶Colorado Department of Revenue
⁷Marijuana Business Daily; Headset. California cannabis retail sales share in 2020, by product type.
⁸Massachusetts cannabis control commission
¹⁰Centers for Disease Control and Prevention. Surgeon General’s Advisory on E-cigarette Use Among Youth.
About the author:
Greg Kunin is the founder and Chief Product Officer of CTH, a leading cannabis technology and product development company. As the Former Director of Product strategy in Altria Israel, Greg has an extensive background in developing products for highly regulated environments as well as experience in product management, marketing and branding in Fortune 100 and start-up companies in the fields of CPG, electronics, retail and banking industry.