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At Cowen Conclave, a Bullish Outlook Despite Trump

More than other major financial firms, Cowen Group thinks cannabis the same way cannabis executives do, as a fast-growing industry that may soon be wildly lucrative. In September, Cowen published an extensive report predicting that legal marijuana would grow into a $50 billion industry by 2026, up from 2016 North American sales of $6.7 billion. In the report, Cowen also became the first major investment bank to extend research coverage to a penny cannabis stock, the packaging company Kush Bottles (OTCQB:KSHB).

This month Cowen hosted its first “cannabis colloquium,” a series of panels with industry executives and activists, to discuss the state of the industry and its future in the Trump administration. Following the discussions, lead analyst Vivien Azer and her colleague Aaron Grey compiled a report on the discussions. Here are some of the highlights.

While President Trump has expressed support for medical marijuana and states’ right to decide its own marijuana policy, a panel of policy experts said his nomination of Alabama Republican Senator Jeff Sessions to be U.S. attorney general casts doubt on Trump’s commitment to legalization. Sessions is a stalwart opponent of legalization who said in 2016 that “good people don’t smoke marijuana.”

This has concerned the industry and during his nomination process, Sessions has done little or nothing to alleviate that concern. Still it’s not clear how, or if, the Trump administration will address legalization, since taking on the industry could have political costs. On Election Day, eight of nine states voting on recreational or medical marijuana decided in favor.

The panel suggested that state governments could vigorously support the industry, since they stand to benefit from marijuana taxes. California, for example, recently hired former U.S. attorney general Eric Holder to fight the Trump administration on legal issues, potentially including cannabis.

Despite the uncertainty created by the election, other speakers believed that the industry is poised to continue growing at a phenomenal rate. According to Cy Scott, CEO of the market data firm Headset, sales in Colorado were up 130% in 2016, while the somewhat less mature market of Washington state grew 180%.

Though its total share is slipping, flower remains, by far, the largest product category accounting for 65% of sales. However all five of the primary product categories – flower, concentrates, pre-rolls, vapor pens and edibles notched triple digit growth last year.

Topicals, though one of the smaller niche categories, registered the highest overall growth rate, more than 400% last year.

Ancillary products such as vaporizers have also shown impressive sales. PAX, a vaporizer company with a lines of nicotine delivery devices and cannabis vaporizers said it had sold more than 1 million units of a  vaporizer with the “super-premium” price of $280.

Some other interesting tidbits Scott shared are that the average consumer is 37 and more than 30% of consumers spend more than $1,000 on cannabis annually. Men account for more than twice as many sales as women, though the gap may be closing.

Headset has found that despite falling prices for many products, all product categories are maintaining profit margins above 50%.

Even so, the competition remains brutal: In the last two years, Washington state had seen the number of cannabis brands grow from basically none to about 500. This growth, the report says, “reminds us of the rapid increases seen in the absolute number of craft breweries over the last few years, underscoring the growth prospects (and ultimate competition) that the cannabis category is slated to experience.”

Another panel focused on the seed to sale supply chain. While there is no “right” way to grow, executives said the cost of goods sold is roughly $1 per outdoor-grown gram and $2 for indoors. In many jurisdictions, legal outdoor growing isn’t possible.

In Canada, where the government has committed to legalizing this year, the market is also booming. Deloitte estimates that the base Canadian market is between $4.9 and $8.7 billion, and that the total economic impact in the country, once ancillary businesses are included, could top $22 billion. (For comparison, Canada has a $5 billion spirits market.)

Already a number of large medical marijuana producers trade on the Toronto Stock Exchange, eventhough legal recreational sales could still be a few years off. In the meantime, legal Canadian companies are already looking to expand overseas to countries including Germany and Brazil.



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