III. Industry Analysis
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[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.
The market in which [Company Name] will compete is experiencing a number of different 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.
- 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.
- 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.