Adam Orens of Marijuana Policy Group dives into impact studies for the state of Colorado.
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As more and more cannabis tax revenue rolls into states such as Colorado, Washington and Oregon we begin to see trends emerge in the way that cannabis is impacting society. To help us understand the impact of cannabis on business and societies Adams Orens of the Marijuana Policy Group. Adam welcome to CannaInsider.
Adam: Thanks Matt. A real pleasure to be here.
Matthew: Adam to give listeners a sense of geography can you tell us where you are in the world today?
Adam: I am in downtown Denver, Colorado what is the epicenter of cannabis at the moment.
Matthew: Yeah Rand Paul was just in town like a week ago for the debates and he was saying people in Washington think everybody in Denver is running around high with axes naked. It’s just absolute pandemonium.
Adam: Well as I look at my window I don’t see any of that, but what I am noticing and what I would counter that with to the people in Washington is that this is the center of cannabis business and there are a lot of people running around with a lot of great entrepreneurial ideas at the moment and it’s exciting to be here.
Matthew: So Adam tell us a little bit about your background. How did you get started in the cannabis industry?
Adam: Well I started as an economic and public policy consultant and I’ve been doing that for over a decade with a firm in Denver called BBC Research and Consulting. So that’s a local firm that we deal with a lot of pressant issues in economics in Colorado; land use things like that. But what really started getting me into the cannabis industry was I saw the election returns in the Fall of 2012, and when Amend 64 passed and I really felt that this could be a new opportunity for my consulting practice.
What I thought at the time was there was going to be a new highly regulated industry with a lot of curiosity around as too how big it is, what are going to be the characteristics of the recreational market and at that time I decided that I’d like to try and wade into this industry and see as many people as I could meet at the time, and I could not have expected the fast growth and our involvement in it from the beginning but I’m very happy that I made that decision in 2012.
Matthew: Together with your co-authors you prepared a report for the state of Colorado titled “Market Size and Demand for Marijuana in Colorado.” Can you give us a little overview of what was covered in that report and what’s important about it?
Adam: Sure. This was a report that was commissioned by the State of Colorado Marijuana Enforcement Division. It was so the state could get a handle on how big marijuana demand was in Colorado. And the reason they needed to do that is they are the agency in the state that is responsible for regulating the market and also adhering to the conditions that were handed down through what’s called the Coal Memorandum from the Department of Justice. And so the state that needs to ensure that I believe there are about eight conditions; eight to twelve conditions were met from the federal government and two of those that are important for this report were to minimize diversion across state lines into states where marijuana is not legal.
And then the other one was to ensure that the black market is as minimized as possible and those two conditions have to do a lot with price and price is dependent on supply and demand. And so that’s why the state hired my group to put forth some demand estimates for them.
Matthew: We see more tax revenues coming into Colorado and obviously places like Washington and now starting with Oregon we’ll see more too. What other big impacts are there besides tax revenues and how do you see tax revenues shaping or changing the conversation or perception around cannabis?
Adam: Well there’s a number of other impacts. I would say they’re not financial in nature like Texas. I mean one could say and a lot of this is uncertain at the moment. Marijuana legalization has impacts on children, it has impacts perhaps on education attainment, traffic impacts, and those are still being studied at the moment. I don’t think enough time has passed for there to be any real clear findings on that. I also think things like the cost of incarceration is important when thinking about tax revenue impact and other public costs. It costs a lot to keep a lot of people in jail for cannabis.
One thing also that’s not discussed as much that I’d love to get a little more information on or study more is how does cannabis used for medical purposes impact spending on pharmaceuticals and also public programs for that as well. Can cannabis be used as a substitute for expensive pharmaceuticals and I think that those are important points that we’ll find out more about as more research comes forward.
Matthew: Anecdotally when I talk to PTSD sufferers it does seem to have a huge replacement impact on traditional pharmaceuticals which I think is a net positive, but no way to measure or I don’t have any metrics around that but I do hear that pretty consistently which is interesting.
Adam: Yeah and I’ve heard the same and I think we’re really still at the beginning of our discovery of other conditions and other applications for cannabis as far as medical treatments. Cannabis has not been studied into the degree that other substances had, and I think we’ll have a period here in the next few years where there will be new discoveries coming to light.
Matthew: Give us an idea in pounds or tons how much cannabis is being consumed in Colorado now?
Adam: So that was one of the pieces of our study that the state asked us to quantify for them. And so our estimate and this was at the time. This was done in 2014 and we’re still in the process of working with the state to define a scope for what could be our next study. At the time it was about 130 metric tons. So that’s about 290,000 pounds of total demand and that’s including medical and recreational. All of the cannabis users in Colorado and our best estimate as too the amount that they would consume in a year and that includes what we had estimated for tourism as well at the time.
Matthew: Who are the super users of cannabis and what are their consumption habits like? Can you compare and contrast those to say a regular or occasional user?
Adam: Sure and this is a really important point that was a finding in our study and I think is important for your listeners as they think about their cannabis businesses and what segments to market too. Super users or heavy users are those that use daily or near daily. And in Colorado we found that those cannabis users are about 20% to 30% of the market of the past month users in total, but they account for north of 70% of the demand of marijuana. So it’s very important for those that are thinking about segments to market too those heavy users are a very important market segment in terms of sales volume.
And then also they consume more per day right. On any given day of use if you’re just an occasional user, we did a survey as part of our study and there was one done in Washington as well that according to the responses to those surveys said that the heavy users would consume over a gram of cannabis per day and that is a lot more than a very occasional user. Even those that consume once a month or so are far less than that on any one given day. So if you think about it if there is someone using every day and then their amount per day is so much, maybe more than three times what an occasional user would use. That’s why they account for so much of the market and the demand.
Matthew: Sure. Are there any other findings in your report that surprised you as you were gathering data?
Adam: Well that and this was focused on Colorado. Colorado had a higher percentage of those monthly users were in the daily or near daily category. So in Colorado and that was compared to the nation as a whole, and what that says to me is if you are a cannabis consumer on at least a monthly basis in Colorado there is more of a chance that you’re in that very regular consumer cohort or category.
Matthew: In terms of potency have you uncovered anything between flower, concentrates, and edibles in your data gathering?
Adam: We did a second study for the state. On this one was asked or was mandated by a piece of legislation in the state house here, and that was to look at equivalencies between cannabis in different forms. Between flower, concentrate, and edible and one additional piece of information that came from our study was some trends on potency and a quantification of potency using the state’s seed to sale tracking system called “Metric” and to my knowledge it was the first published study that had a whole lot of records behind it to look at these potencies and what we were showing were that flower was at about 17% THC in potency.
So when you compare that to other literature and kind of historically it’s trending up and sure there are other producers out there that can get their flower as high as I’ve seen things higher than 25% and higher than 30% even. So I think due to the genetics and the research being done and I think largely also because of the rec market flower potency is trending up. Concentrates and edibles are very related. They have a lot of similar components and concentrates are used to make edibles and they’re also developing new techniques for efficiency. It’s more efficient if you are making edibles that your concentrate is strong and so that you can use it to spread out among more batches and so we see a lot of these processes becoming more efficient and people developing new techniques that push efficiency when making concentrates and edibles.
Matthew: You mentioned Metric which is the state of Colorado’s seed to sale tracking system. How onerous is it to keep up to date for that for a business? Is this pretty simple? Do you have anything you could tell us about what businesses like about it or don’t like about it? What it does well any gaping holes?
Adam: I see a system that it’s useful for the state, it’s useful for their enforcement practices, and it’s becoming more useful for data gathering and for using market data in leveraging it for scientific studies like that equivalency study that I mentioned. I have heard anecdotally when we were doing that equivalency study. We interviewed a number of concentrate and edible producers and they did say that it is somewhat onerous to use that they have to devote some staff to it.
That it’s a system that has a learning curve. It’s a little difficult to get in and become a comfortable user of it, but I feel that it was a common complaint among the concentrate and edible producers that we interviewed that they have to hire a staff person and devote it to using Metric, and so they do find that somewhat onerous. Anecdotal though I think from what I’ve heard from the state they are committed to making this industry and this system work, and so I’d encourage those that have issue to report some of that back to the state.
Matthew: You mentioned before that the super user uses so much more than the occasional user. Is there any other intelligence a business owner in the cannabis industry should have handy when considering a new product or how to market their product that you would say would make sense?
Adam: Looking at the overall demand figures I think are very helpful, looking at some of the processes in the equivalency study that would be for a new entrepreneur trying to consider as a business. I would find those two documents to be considered would be a very useful part of your kind of elementary education into this cannabis business. I think looking forward there is a lot that is going to be forthcoming. I think for an established cultivator or product company those two reports are a bit basic for them. They already know some of this. They’re already producing things, but I think moving forward there’s going to be more information that segments markets either geographically or also demographically. I think some of that could come out in our forthcoming study for the state when we get to use Metric a bit more and are able to have two years of this data to start to uncover characteristics of the market that haven’t come forth yet.
So I think next year will be an exciting time for this part of it. I think it’s a great question because this industry is maturing right. In places like Colorado it is a few steps beyond other states. And so I think trying to work your margins, target your marketing to specific market segments those things are going to be a lot more important coming up and I think the research is going to start tracking with that, the market research and a lot of that also can come from their own point of sale providers too. These businesses do have a lot of information at their finger tips. Some public like I was describing but also some that are private data that they are collecting on their own. And I think they’ll have a great opportunity to start using these first couple years of data to benefit them in the next few years.
Matthew: Are there any interviews you’ve done with cultivators, dispensary owners, or someone that’s maybe a processor in the cannabis space that really stood out in terms of it being a learning experience that was impactful for you that changed the way you maybe thought about the cannabis marketplace?
Adam: Yeah, yeah and this is the first tour of commercial cultivation that I went on. This was in February of 2014. We were doing our market size study for the state. We were taken on a tour of a larger cultivation in Denver and I was able to see just the amount of professionalism that went on in that operation and that this was industrial agriculture. This was an agricultural operation and it was very dialed in, very precise, and the expense in the infrastructure that went into that cultivation facility was really eye opening.
The science behind the process was also eye opening and I mean it was really kind of important for me understanding the amount of investment that goes into this and how real this industry is. How it has staying power I believe here. I learned that in my first tour of a large grow facility. I’ve also gone on tour with the equivalency study I did. These extractors and edibles manufacturers and those again were just a high degree of professionalism. Very welcoming proprietor of the operation very invested in their processes and the safety. Either food safety or in the extraction process safety and so that also stood out so just the combination of those tours really kind of I earned a high degree of respect for the professionals that are doing that work.
Matthew: If you could wave a magic wand and get some piece of data that seems impossible or just near impossible for you to get right now that you think would shed a lot of light on things what would you; what would that be?
Adam: I’d love it if there was a piece of data that could say if the vision of Amendment 64 here was working. I wish that would exist. I mean I know this is kind of nebulous what I’m talking about here but people are going to start asking is this working, is this a net positive for society here and I don’t think we’ll ever really know that for sure. There will always be these just disparate pieces of data that we all know may be affected by cannabis legalization like number of incarcerations, incarceration costs, emergency room visits, traffic fatalities, graduation rates all these things that people mention are part of how to measure it but we’ll never be able to isolate the impact of cannabis on that in a silo or in a vacuum and so I wish there was a way to point, a figure that we could point to say oh it’s working or oh it’s not. But I don’t think that is going to exist anytime soon.
Matthew: What can you tell us about tourists and their appetite for cannabis? I’ve witnessed some things on my own in their purchasing behavior at dispensaries but I’m curious your thoughts on that. What the tourists are doing?
Adam: Yeah. It’s funny because you hear a different thing from the state tourism office than you do hear from business owners. I think the state says that it’s a very small percentage and I don’t know the exact figure of our tourist related cannabis but in dispensary owners that I’ve talked to and things that I’ve read in the newspapers. The coverage everybody sites their client base or their customer base as being half and half locals and tourists and that’s even around Denver right so I bet if you’re in more of a tourist based county or area like up in the mountains in the ski resort areas I bet that’s higher.
I bet those retail outlets in those mountain communities may have a higher degree of tourists coming in there. I’ve also heard anecdotally that the universities in Colorado, the public ones are having record high amounts of applications coming in from out of state students and yeah I know that’s pretty funny isn’t it. So I see this disconnect and I see also the tourism impact is going to be a declining phenomenon right. I think as more states or to the degree that more states legalize cannabis I think that that tourism component of the market is going to slowly decrease. But still if you have a cannabis consumer that is trying to decide between too going skiing in Colorado versus going skiing in Utah maybe this weighs in the way they decide where to go skiing that week.
Matthew: What has changed in the cannabis market since you put your report together?
Adam: When we put our report out very early on it was released the July after the rec market opened in January and at the time there was a lot of coverage in the media about taxes being way too high and about how the market is not gaining converts from the black-market as fast as we would’ve hoped and from what I can see that impact is starting to subside. I think as more centers came online, as more product was being introduced into the recreational market, as the novelty started to wear off and the high tourism impact in those first few months we’re seeing prices come down and I think that it’s an indicator that this market is working. That the regulatory structure is generally working. Based on some numbers we saw from the first year of sales in calendar year 2014 the regulated market was in both medical and recreational able to satisfy somewhere about 70% of the demand and I’m not including the caregivers in there as well in Colorado.
So I think for a first year rollout that’s a success and I think as prices when they settle, when they steady to an acceptable amount I think the regulated market share what they’re taking from black-market and underground producers is only going to increase and so I think given what has transpired since 2014 I think both the state and the industry have done a great job at trying to cooperate to make this market a success and I think both sides know that they’re success is dependent on the other and I hope all of that will continue going forward.
Matthew: Adam in closing can you tell listeners how they can find the Marijuana Policy Group online and follow your work?
Adam: Absolutely and we do have a news feed that we try and keep updated as best we can. Our website is www.mjpolicygroup.com. Once again www.mjpolicygroup.com.
Matthew: Adam thanks so much for coming on CannaInsider today. We really appreciate it.
Adam: The pleasure is all mine Matt. Thanks.
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- How much cannabis is purchased in dispensaries
- How much cannabis super-users purchase, and why you need to pay attention to this particular type of consumer
- How tax revenues are impacted and how that is changing the perception of the public
[2:24] – Adam’s background and how he got started in the cannabis industry
[4:10] – Adam discusses the report Market Size and Demand for Marijuana in Colorado
[5:59] – Tax revenues and the cannabis industry
[8:19] – Adam talks about how much cannabis is being consumed in Colorado
[9:24] – What are cannabis super-users?
[11:37] – Adam talks about surprising findings in the report
[12:26] – Discussing potency
[15:00] – Adam talks about Colorado’s seed to sale tracking system, Metric
[16:45] – What should entrepreneurs consider before launching a new product
[19:21] – Adam talks about his view of the cannabis market have evolved
[23:04] – Adam discusses the tourists’ behavior around cannabis
[25:10] – What has changed in the market since the report was produced
[27:40] – Contact details for the Marijuana Policy Group
What are the five trends that will disrupt the cannabis market in the next five year?Find out with your free guide at: http://www.cannainsider.com/trends
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