The cannabis industry is approaching an inflection point. And it’s not just about flowers anymore. A new report from the Institutional Equity Research arm of Canadian Imperial Bank of Commerce (CIBC) suggests the future of cannabis is in derivative products like CBD concentrates.
The report – Cannabis: The Beginning of a Global Seismic Shift – represents the start of the firm’s coverage of the cannabis sector, a milestone itself. While the report focuses primarily on Canada, where adult recreational uses of cannabis became legal last year, it also makes some noteworthy observations about the U.S. market. “[W]e must acknowledge that an increasing number of sophisticated investors are beginning to shift capital to U.S.-based operators,” the report states.
A key takeaway from the report is that derivative products – like CBD vapes – will be a key driver of retail market expansion going forward.
“Canadians are currently only able to legally purchase three products at retail: dried flower, pre-rolled joints, and cannabis oil (or capsules). However, in more advanced markets such as Colorado, we are able to clearly see a trend away from flower, and towards concentrates, which include vape pens and extracts known as shatter or wax,” the report explains. “Interestingly, edible products have remained mostly stagnant the past few years.”
This squares with our observations of the U.S. market, particularly with passage of 2018 Farm Bill which lifted federal prohibitions on hemp under the federal Controlled Substances Act. We’re seeing a notable uptick in interest in payment processing services from companies selling CBD oils derived from hemp.
Hemp-derived CBD oils are a huge money maker. New Frontier Data, a data and analytics firm focused on the cannabis industry, expects the market for hemp-derived CBD products to balloon from $390 million in 2018 to $1.3 billion by 2022. That amounts to a 27.2% 5-year combined annual growth rate. “Removing hemp from the [Controlled Substances Act] will have immediate impacts, and create a financial domino effect,” New Frontier wrote in December.
The change in federal law means banks can now open their doors to companies producing CBD vapes and related products without fear of running afoul of regulators. And it means payment processing companies, like Paybotic, can deliver more robust products and services that support these businesses.
Here at Paybotic we are excited about the budding opportunities for delivering best-in-class payment processing solutions to businesses selling CBD vapes and other cannabis derivatives.