2019 has been a banner year for the US cannabis industry and this is a market that we have been closely monitoring.
Although one of the most popular ways to engage in the US market is through multi-state cannabis operators, we believe that the costs associated with these operators are astronomical and believe that there are better ways to capitalize on the US market.
If you are a vertically integrated cannabis operator in the US, you are responsible for the cultivation of cannabis, the processing of cannabis, the quality assurance testing of cannabis, the distribution of cannabis, and much more. To be a multi-state operator, you will need hundreds of millions of dollars to successfully scale the business and this still might not be enough capital to effectively execute.
When we look at the current landscape of the US cannabis industry, we believe that the companies that own leading cannabis brands have a similar opportunity when compare to the multi-state operators but in a manner that is much less capital intensive. These brand focused companies are not burdened by activities such as the cultivation of cannabis crops, the building out of multi-million-dollar grow facilities, the arduous licensing process, and much more.
Although many people will assert that these multi-state operators have valuations that exceed $1 billion, the same argument can be made for brands. Earlier this year, Select, a leading cannabis concentrate brand, was acquired for approx. $1 billion a milestone which proves that there is huge value in being a leading cannabis brand.
Cannabis concentrates are the most attractive vertical of the cannabis industry and this product category has been recording strong growth on a year-over-year basis. This is a trend that we expect to continue in the years ahead and you don’t need to take our word for it since data providers like ArcView, BDS Analytics, and Headset have released data that reinforce our thesis.
According to ArcView, cannabis flower generated $4.2 billion in sales in 2017 while cannabis concentrates generated $1.9 billion in sales and edibles generated $1.0 billion in sales. By 2022, cannabis flower is predicted to be a $10.5 billion market, with cannabis concentrates expected to also be a $10.5 billion market and edibles to be $4.1 billion market.
We are favorable on the impact that this transition will have on the companies that are levered to the cannabis concentrate and edible market and have been focused on identifying companies that will be benefit from these changes.
Ionic Brands (IONC.CN) (IONKF) is led by a management team that was able to identify and adapt to this transition and has been able to penetrate some of the most competitive cannabis markets by acquiring a portfolio of leading cannabis brands. The company has been highly focused on the cannabis concentrate and the cannabis infused product opportunities, having grown from a base in Washington State down through the entire west coast of Oregon, California and Nevada.
When it comes to the branding opportunity for cannabis products, Ionic Brands is a proven operator that has been able to capitalize on the medical and recreational cannabis concentrate opportunity in multiple major markets. We believe that Ionic Brands has been executing on a national expansion plan and has had its finger on the pulse of the cannabis market.
Cannabis Concentrate is King.
Cannabis concentrates are the fastest growing vertical of the industry, which is not surprising due to it being the key input product that is needed to make all sorts of cannabis products (i.e. edibles, vape pens, topicals, and tinctures). According to ArcView and BDS Analytics, cannabis concentrates, and cannabis flower will have equal in market share by 2022. During this time period, cannabis infused products will also gain market share
One of the reasons we are favorable on Ionic Brands is due to the leverage to the vape market. When you look at some of the most mature cannabis markets in the US, vapes emerge as the dominant vertical within the cannabis concentrate market. According to BDS Analytics, vapes accounted for $97 million of sales of cannabis concentrates in Colorado. This is greater than the amount of sales of wax, shatter, live resin, oil, and other concentrate products combined. In Oregon, the disparity between the sale of vapes when compared to all other cannabis concentrate products is even more significant as vapes accounted for $20 million of sales in this market.
When looking at the data provided by BDS Analytics with regard to the California market, it is almost impossible to not be overly excited about the vape opportunity. In 2017, vapes accounted for $282 million of sales while all other cannabis concentrated products accounted for $77 million of sales. Through a diverse line of premium cannabis concentrate products, Ionic Brands is highly focused on capturing market share in California and we expect to see these products gain significant traction.
Another reason we are favorable on Ionic Brands’ focus on the cannabis concentrate market is due to simple economics. The margins associated with the sale of cannabis concentrate products have not gone unnoticed. During the last year, we have seen an influx of cannabis concentrate companies and a majority of these companies offer lower tier products. When it comes to cannabis concentrates, consumers are looking to go with brands they trust. Ionic Brands has done a fantastic job when it comes to acquiring premium cannabis concentrate brands with cult-like followings. This aspect of the story will play a key role in how Ionic is able to capture market share in the markets that it enters.
Focused on Quality and Quantity
According to a survey conducted by AT Kearney, branding has become a very important part of a consumer process when assessing the quality and safety of cannabis products and 48% consider it to be very important while 28% consider it to be somewhat important. This leaves Ionic Brands is a great position as the company’s portfolio of cannabis products is comprised of several well-known and trusted brands.
Over the next year, we expect to see Ionic Brands significantly advance its story and are especially excited about the recent move into the Nevada market. The vape market in Las Vegas is massive and through an agreement to acquire Vegas Valley Growers (VVG), the company is well positioned to capitalize on it. The acquisition includes VVG’s flagship vape brands, Vegas M Stick and Reno M Stick, and this should be a major value driver for the entire company. These products have distribution into more than 75% of the dispensaries in Nevada and the acquisition also includes four state licenses for the cultivation and manufacturing of both medical and recreational cannabis.
Over the next year, we expect the trend toward cannabis concentrates to become even more significant and believe that cannabis infused products and edibles will be the primary driver of this. By 2022, the cannabis concentrate market is expected to be generating approx. $8 billion in retail sales and this represents a massive opportunity for Ionic Brands.
If you are interested in learning more about Ionic Brands, please reach out to firstname.lastname@example.org.
Pursuant to an agreement between StoneBridge Partners LLC and Ionic Brands Inc. we have been hired for a period of 90 days beginning July 11, 2019 and ending October 11, 2019 to publicly disseminate information about (IONC) including on the Website and other media including Facebook and Twitter. We are being paid $6,666 per month (IONC) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero (0) shares of (IONC), which we purchased in the open market. We plan to sell the “ZERO” shares of (IONC) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (IONC) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.
Published at Mon, 22 Jul 2019 11:25:00 +0000