Assorted American money and cannabis reflected in a glass ball.
Last year multiple states legalized cannabis and as a result, many industry pundits believe federal legalization may be increasingly near. Yet not all share this view. For instance, Richard Batenburg III, chief investment officer of Cliintel Capital Management Group, a Denver-based venture capital firm, believes legalization may be a lot further off than we think. Batenburg, who has been investing in cannabis since 2015, contends that 2022 will be a year of consolidation and competition. It’s a compelling forecast and he cites a number of reasons for it.
Iris Dorbian: Why do you think 2022 will be the year of consolidation of existing companies and increased competition due to the growing strength of brands?
Richard Batenburg III: Regulations, marketing and scale. Cannabis, in its current regulatory environment, is not adaptable or scalable. The market is experiencing arrested development due to crippling tax regulations, a lack of institutional banking and the commoditization of the plant, leaving operators with little to no margin for revenue and further incentivizing the consolidation of the industry.
Creating an emotional connection with consumers will continue to be key to success in cannabis, much like any industry. But in cannabis, brands must also create a strong connection with budtenders, who are highly influential in shaping consumer’s buying preferences. You can spend all the money you want on marketing, but if the budtender suggests a different product, then you can’t win. By consolidating and growing, companies enhance their ability to execute comprehensive multi-pronged marketing strategies that engage consumers and budtenders at all levels. Surviving 2022 is possible by creating a consistent product, building an authentic brand, and gaining as much shelf space in as many dispensaries in as many states as possible.
Dorbian: Do you have any thoughts on the markets that recently legalized cannabis? Any forecasts on where they’ll be in 2022?
Richard Batenburg III, chief investment officer of Cliintel Capital Management Group
Batenburg: The legal system is not known for its ability to adjust to market changes quickly. By the end of 2022, new markets such as New Jersey and New York will be lucky if new regulations are even in place, as the licensing process often takes at least a year.
Recommended For You
The 2022 forecast for newly legalized markets such as New York is steady medical sales, increased paperwork, overworked employees at the state cannabis association and hopeful, yet restless consumers. That said, it will likely take three to five years for new recreational markets to gain consistent traction.
Dorbian: Are there any areas you can see having the most growth and, conversely, the most decline in growth? Why?
Batenburg: Any area of cannabis that will help the industry develop into a legitimate market will see growth. Cannabis is an emerging market; just like any other, it comes down to basic economics. Operators must stop mystifying cannabis and start applying business acumen.
Companies that strategically develop products based on consumers’ needs will gain market share and growth. Consumer preferences such as taste, potency and ease of use will direct the market. Additionally, edibles will see the most growth, as this method of consuming cannabis is most comfortable for new consumers.
Systems that promote scalability and efficiencies will also see growth. For example, technology that manages supply chains and manufacturing will improve the sales process and boost sales. Agricultural methods adopted from the farming industry will increase the relative weight-to-volume and will further commoditize cannabis.
As cannabis moves through a normal economic cycle, cannabis-specific solutions will decline. Maturing markets will move away from the medical structure in favor of more accessible recreational cannabis, and regulation will move towards the liquor distribution model. Similarly, if consumers don’t concern themselves with where the wheat is grown for vodka or which liquor store it is purchased from, cannabis consumers will make similar purchasing decisions in the future. The commercialization of cannabis is coming.
