Welcome to Headset’s year-end report on the 2016 cannabis industry. This report covers sales trends, product categories, retailers, brands, and demographics, providing information about trends within those areas, as well as ways they interact with one another. The information provided here is based off the sales data collected by Headset in 2016, and will provide you with a clear overview of the current market and some valuable insights into what it might look like going forward.
Though the recent election has many in the cannabis industry concerned, the industry’s consistent growth and expansion should be reassuring. As far as our data shows, the industry is doing just fine. In Washington, sales have consistently increased and product categories have expanded significantly, reflecting increased consumer familiarity with cannabis.
Indeed, overall sales went up by an average of 7% each month, representing almost a doubling of the market from 2015. Flower’s share of that market continued to decline, going from 64% to a little over 58%. This is probably explained by the consistent introduction of new, non-flower cannabis products to the marketplace—everything from breath strips to tomato soup, not to mention a myriad of tinctures, topicals, capsules, concentrates, beverages, and so on ad infinitum.
Most retail stores are doing well in this climate, with product margins ranging from 43-46% on up to 67% and averaging between 52-58%. On the production side of things, bigger brands tend to do a little better, with the top 20 brands taking 32% of overall sales, and the top 100 brands taking 71%. Within edibles, that trend is even more pronounced, with the top 10 edible manufacturers taking 82% of the category’s total sales for the year.
Our demographic data shows that while previous trends around women and cannabis use continue to hold—women do not purchase flower and concentrates at nearly the same rate as men—new product categories are resonating well with them. Nearly half the market for the Tincture/Sublingual and Topical categories went to women in 2016.
This last detail might not be much of a surprise, but nearly 30% of all baskets contained at least one pre-rolled item. Convenience is still king, apparently!
In all, the market has remained incredibly promising. It has also begun to mature in interesting ways, with increasing segmentation along demographic lines and a broader range of product categories. The charts below tell a story of a market that is still young, and still growing by leaps and bounds, but also beginning to find its feet.
Data for this report comes from real-time sales reporting by participating Washington State cannabis retailers via their point-of-sale systems, which are linked up with Headset’s business analytics software. This report is based on data collected from retailers in 2016. That data is cross-referenced with our catalog of over 63,000 products to provide detailed information on market trends.
Headset’s data is very reliable, as it comes digitally direct from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. Thus, there is a slight margin of error to consider.
On average, sales increased by 7% per month, with total sales in 2016 representing a 180% increase over sales in 2015.
This growth in sales comes amidst a fairly drastic reduction in price from 2015. The average price per item has decreased over time, stabilizing over the past 6 months at just over $15 per item. Sales growth in 2016 was due, essentially, to people buying more pot. The number of items per purchase increased over 2500% in 2016.
Because sales were up overall, every product category grew to some extent. However, Topicals, Concentrates, and Capsules were the hottest markets, growing at about double the average rate. Beverages, Edibles, and Flower saw a below average growth rate, though the market for Edibles and Flower still doubled in size from last year.
Given the significant differences in growth rates between product categories, overall market shares have shifted slightly. In 2015, Flower, which remains the largest segment, did see its overall share decline from 64% to 58%. Reroll products barely held onto their position as the second largest segment, with Concentrates coming in at a close 3rd and Vapor Pens not far behind. As you can see, when comparing these two charts, the market dominance of flower is by no means set in stone.
In terms of item price, only Topicals and Flower saw an increase in the average price paid per item in December of 2016 compared to December2015. Even then, the increase was quite small, further illustrating the fact that it was not the price of the items but rather the number of items purchased that drove this year’s sales growth.
Profit margins, as one would expect, declined slightly in every category except Flower, Pre-Roll, and Edibles. However, the changes were slight,and profit margins remain close to what they were in 2015.
The chart below illustrates just how much average item prices vary based on product category. This is even more apparent when considering unit sales in each category by item price. Prepolls, as one would expect, see nearly 90% of their unit sales being driven by products that are less than $10 per item. People seem more willing to invest in Vapor Pens, as that category sees about 30% of sales coming from products that are over $30 per item.
This graph offers a more detailed breakdown of how average item price affects sales distribution across categories. For common product categories like Flower, Edible, and especially Reroll, the cheaper the better. Only in Vapor Pens were higher priced items able to command a somewhat sizeable chunk of the market share, and even then only at the $30-40 level. This graph indicates that consumer price sensitivity is still an important factor to consider.
Pre-rolls, as one might expect, are the only category that saw a majority of sales where it was the only item in the basket. For all other categories, consumers bought those items along with items from other categories a greater percentage of the time. Overall, 46% of baskets contained more than one item and 85% of those contained more than one distinct product, suggesting that consumers are grabbingsecond and third items to pursue new experiences, rather than just buying the same product in bulk. Beverages, for example, were Avery popular thing to include as an add-on to a purchase, with only 30% of baskets containing beverage items containing only beverage items. Flower, however, still tends to be bought on its own, with 80% of baskets containing Flower having only Flower items, and 85% of the sale total for those baskets going to the Flower products. This could be because of the preference among die hard cannabis enthusiasts for flower, and the fact that regular smokers still dominate the legal cannabis market.
Stores with higher margins tend to see slightly fewer units per basket but higher prices. Stores with higher than 57% margins had baskets that were about 15% higher in total basket price, which would seem to indicate some stratification among retailers, with certain stores going for lower prices and higher volume while others pursue the higher end of the market.
Newer categories like Beverages, Capsules, Tincture/Sublingual's, and Topicals tend to have a high concentration of sales going to a single brand, while categories that have been around long enough to experience more brand saturation see a wider distribution. Flower, for example, sees over 70% of its sales going to brands outside of the top 10. Pre-rolls aren’t far behind, with over 60% of sales going outside of the top 10.
As far as those top brands go, some have stayed on top since 2015, while others have been dethroned. The table below shows a 2015 to2016 comparison of the top brand for each category, as well as their market share. The biggest change was in the Capsules category, where Northwest Cannabis Solutions held 56% of the market in 2015, but was replaced by Fairings at 30% in 2016. Clearly, given the much lower market share it took to earn the top rank in 2016, the Capsule market has expanded and diversified quite a bit in the past year.
Women made up about one-third of the total sales in 2016. This market share was fairly consistent throughout the year and is similar to what it was in 2015.
Women tend to spend slightly more when they shop, with the average basket for women being $37.14 while men purchase only $35.36 per basket. And while women make up only about 31% of total sales this varies by category, as illustrated below. Flower and Concentrates are still very male-dominated, while women account for nearly half the market for Tincture/Sublingual and Topicals.
The percent of total purchases made by a given age group varies widely across product categories. Older smokers, perhaps because such products did not exist when they first experienced cannabis, tend to shy away from vapor pens and concentrates, preferring Tincture/Sublingual and Edibles. Capsules and Topicals saw an even distribution of sales by age group
As our data shows, Washington’s market is moving forward steadily. Sales have increased overall, as well as product offerings. Some clear differences in spending patterns are beginning to emerge along demographic lines, as well as by product category. After two and a half years of legal cannabis sales, the market is beginning to exhibit some of the stratification and diversity that’s long been expected of it. Perhaps most importantly, consumers are beginning to exhibit more complexity in their preferences and buying patterns.
In 2017, quality in cannabis will likely begin to matter more than ever, as Washington consumers become more aware of the different qualities of cannabis products. Lab testing for cannabis, currently a somewhat murky affair, will come to be a standardized, dependable process because retailers and consumers will start demanding that it be. Though consumer education has a long way to go, Washington consumers have Had to and a half years of legal cannabis, and have learned a lot in that time.
Terpenes, for example, are being touted more widely than ever, and the public is starting to catch on to what they are and why they matter to the cannabis experience. Consumers are also more aware of and interested in CBD than ever, as our previous market report on CBD-richproducts demonstrated. The Washington State Liquor and Cannabis Board, in partnership with the state’s Department of Agriculture, just launched their first state-run testing lab to screen for pesticides, which will put even more information in the hands of consumers. For the savvy businessperson, these are all good things. Smart entrepreneurs in the cannabis space—especially those with access to meaningful, timely market data—can expect to find plenty of innovative ways to appeal to consumers. This is even more true for the new crop of consumers that is sure to come with increased of acceptance of cannabis.
Indeed, given the success of last year’s state-level cannabis initiatives, especially California’s Prop. 64, it’s safe to say that 2017 is the year cannabis enters the mainstream. Whatever happens at the level of the federal government, cannabis is more entrenched in mainstream culture than ever before. Just look at Martha Stewart and Snoop Dogg’s cooking show if you need proof of that!
This will likely affect consumer demand in interesting ways. Flower is immensely popular with cannabis consumers who developed their habits during the black market era. While flower sales will likely continue to grow overall, they will likely make up less and less of the overall market as more Martha Stewart fans join the market.
Beyond that, we can expect to see brands begin to establish themselves as household names, especially as they go national via interstate licensing agreements. Out-of-state ownership is currently not allowed in Washington (though that could change during the 2017 legislative session), but smart brands have already begun to expand their reach and recognition by partnering with like-minded people in other states. There is plenty of uncertainty ahead for the Washington cannabis market—no one knows how the next administration will approach cannabis, how our market will react to legalization in California, or which states will go legal next—but one thing is certain: The cannabis industry is just getting started.
Headset is market data and business intelligence for the cannabis industry. Our extensive Industry Report deep-dives into specific brands to help businesses better monitor the competitive landscape and perform exhaustive category analysis. Reports are generated via aggregate, real-time transaction data to get a unique and thorough analysis of what’s happening in the Washington market.
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