III. Industry Analysis
[Company Name] competes against other licensed cannabis cultivators, as well as black market cultivators.
According to a report by The National Cannabis Industry Association, the cannabis cultivation business industry is a fragmented one, with the four largest operators accounting for less than 25% of revenue. The market is estimated to grow to over $32 billion in five years. Since there are no truly dominant competitors, barriers to entry are not as high as many other industries, and a start-up can expect to have success in this growing market, [Company Name] is well-positioned for success. There is plenty of room in the industry, particularly for organic growers that cater to specific demographic trends and demands.
Market Trends
The market in which [Company Name] will compete is experiencing a number of different trends.
Market-level trends:
- Strong growth. Though the rate of growth has begun to slow, this market is expected to exhibit continued strong growth of about 18.3% annually.
- Regulation. The use of cannabis is still illegal on a Federal level; however, the current administration has expressed support for the industry. Legislation regarding the removal of cannabis from the Federal list of Schedule 1 drugs has been passed by the House of Representatives, and is moving now to a Senate vote. Further, many states have legalized the medical use of cannabis, and a growing number have legalized the recreational use of cannabis. Because the industry is young and legalization is fairly new, many states still have several regulatory details to iron out.
Firm-level trends:
- Consolidation. As the industry matures, merger and acquisition activity is likely to increase. In fact, last year was a strong year for M&A activity, with more than 306 transactions. Over the next five years, the industry is also expected to continue to have significant M&A activity.
- Environmental Consciousness. Cannabis requires a lot of natural resources to grow. Worsening drought conditions and environmental concerns are prompting cultivators to look for ways to conserve water and reduce electricity usage to lessen carbon emissions.
Customer-level trends:
- Potency. There has been an increasing demand from consumers for high THC strains.
- Purchasing preferences. Customers are increasingly shopping online, including shopping for cannabis. The pandemic spurred increased usage of preordering, curbside pickup, and delivery, and consumers continue to embrace these options.
