Roy Bingham is the CEO of BDS Analytics. BDS collects sales data at the point of sale in dispensaries. Roy knows EXACTLY what is selling and what cannabis product trends are accelerating and what trends are fading. In this interview, Roy tells us what is selling in California dispensaries.
[1:57] – Roy’s background
[2:35] – Roy talks about the state of legalization in California
[3:29] – Total spend in California dispensaries this year
[7:09] – Roy talks about how dispensaries spend breakdown
[8:10] – Bestselling strains in California
[9:51] – Roy compares the cost of flower in California to other states
[11:03] – Trends in the market
[12:08] – Roy talks about concentrates
[16:23] – Roy talks about growers
[17:35] – Popular edibles in California
[18:44] – How good are the retail displays
[21:14] – Branching out into new categories
[23:00] – Roy talks about the unpopularity of topicals
[26:03] – Roy answers some personal development questions
[30:11] – Roy’s contact information
Learn more at BDS Analytics
Get the California Cannabis Dispensary data briefing here:
California passed France last year to become the world's sixth largest economy. California matters not only because of the size of its economy but also because California creates and drives its cannabis innovation beyond its own borders into the rest of the United States and the world. I am pleased to welcome Roy Bingham, CEO of BDS Analytics, back to CannaInsider today to tell us what cannabis products are selling in California. Roy, welcome back.
Roy Bingham: Thank you. It's great to be back, Matthew.
Matthew: Tell us where you are in the world right now.
Roy: I'm in Boulder, Colorado, in my home office which I love to be in, but don't spend very much time here. Kind of a fun day for us here because it's coming up to Halloween and our officers decided this is the day for us to do fancy dress. So I'm dressed as Count Dracula right now, which is a traditional thing for me.
Matthew: Do you have the full face paint on and everything or no face paint?
Roy: No, yeah, that may happen later today. But at the moment, no, it's just a very conservative outfit.
Matthew: Right, okay. Good. For guests that don't...
Roy: I'm glad to talk to cannainsider listeners. I got to say, I'm amazed how many people come say, "Hello," to me who have first heard me on CannaInsider in the past. So your message is getting far and wide.
Matthew: Oh good, I'm glad to hear that. Yes, it's fun to go to places and events and stuff and meet listeners. It really makes it kind of surreal. So I'm glad you mentioned that.
Roy: You bet.
Matthew: For guests that don't remember Roy's background, it includes an MBA from Harvard, time at McKinsey Consulting and then, ultimately, working at a POS data firm in the natural food industry. If you wanna hear more about Roy's background, I encourage you to listen to episodes 133 and 100. So you just go to cannainsider.com/133 and then the same 100, it'll take you right to those episodes if you wanna hear more about Roy's background. Now, let's jump into California. What's going on in California? Help us understand the context of where they're at in cannabis legalization and what's happening.
Roy: Well, of course, California has had a legal medical market for 20 years now, far ahead of any other state. But they are on the threshold of having adult use which will begin January 1 of next year. And so, they're in the process of implementing a completely new set of regulations for the entire market. It's obviously going to be very confusing for the next several months. I spend at least a week every month in California at the moment and I can tell that dispensary owners are very uncertain, and the regulators are fairly uncertain themselves about exactly how it's all going to work. But it's a huge change that's coming to the largest state in the United States and, as you said, the sixth largest economy in the world.
Matthew: Yes. What's the total cannabis spent in California dispensary so far this year?
Roy: Yes, so that's not even easy to calculate either. The first thing is that data hasn't been centralized, there's been no regulatory authority, and there are thousands of dispensaries. And in Northern California, they have tended to be regulated by the city or district, whereas in Southern California, it's a little bit of the Wild West. We estimate that there are well over 3,000 operating dispensaries and delivery services in California. And for context, they're about 700 in Colorado. Based upon our panel of dispensaries that are providing us with data, we're estimating that the market is about $3 billion at the present time, and by that, I mean regulated entities but not necessarily. For example, in Los Angeles at the moment, no one is really regulated but these are people that are operating in the open with confidence expecting that they will be admitted to regulation next year. So yeah, it's big. $3 billion, of course, represents about 40% of the entire US market at the present time.
Matthew: Yeah. And when you think, it's really all in...a lot of it's in the big cities in Southern California, in Northern California, you can take out the rest of the state because the Central Valley is so big, it's those huge metropolitan areas in Northern and Southern California that probably makeup 80% of that, I would guess. Something huge.
Roy: Yes, absolutely. And in fact, we also did a comprehensive consumer survey of Californians about two months ago, in June of this year, three months ago. And it identified that the vast majority of the market are urban dwellers among, you know, hundreds of other data points that we learn from that process.
Matthew: Well, anything else you wanna tell us from that survey that's interesting? Anything you wanna highlight? [inaudible [00:05:37] that sticks out?
Roy: Well, yes. So actually, if people go to bdsanalytics.com and if you go to our market insights blog, you'll actually find that you can download a report, it's about a 10-page report called, "Now we Know What Californians are Smoking," and that covers, you know, which products Californians are consuming. And then, separately, if you contact us, we can go into detail about who the Californians are who are consuming those products. But, you know, at a very high level, they tend to be affluent, they're highly educated, they have an average income of about $94,000 a year. As many as 30% of them have been to graduate school. They describe themselves as being happier than the non-consumers and that life has treated them better. They're outdoorsy, they're social, they tend to average younger but the average age is not very young, it's about 38. And they skew a little bit towards the male versus female, about 55% male. But among the newer adopters, it's about a 50/50 ratio or even actually slightly skewing towards females now. So that's just a little bit of the data that's in those reports.
Matthew: And how does the dispensary spend breakdown in terms of flour, edibles, concentrates, pre-rolls? Anything else?
Roy: Yes, yes. So that's very interesting. You know, in California, in the last six months, flour represents about 55% of consumers spend in dispensaries and delivery services. And concentrates are big, they're 25% of the market already. Edibles, about 12% of the market. Pre-roll product is about 5%. And everything else is about 4% of what's purchased in those dispensaries.
And that's an interesting comparison to the other major states: Colorado, Washington, and Oregon. Washington is also flour about 55%. Colorado and Oregon have had a little longer head start with adult use and they're down to just below 50% flour. And concentrates also in the 25% to 27% range.
Matthew: Okay. And what strains are the best sellers in dispensaries in California?
Roy: Yeah. Well, the first thing to say is that individual strains are a relatively small share of the market. The largest share, by a long way, is blends.
Matthew: Yeah, hybrids.
Roy: So in the last six months, yeah, in the last six months, flour sells about $740 million of which an array of blends represents $450 million, especially indica blends. The individual strains, and we have 13,000 names of strains in our database, would you believe? The individual strains like Blue Dream is number one with about 13 million in sales but that's really only about 2% of the market. Gorilla Glue number four, second, Girl Scout Cookies, third, Jakarta, fourth, all about 1% of the market. So it's really those blends that dominate.
Matthew: So it's an inch deep and a mile wide there with the strains?
Roy: Absolutely, yes. It's one of those classic longtail market environments. Yeah.
Matthew: I guess it makes sense that flour starts out strong and then kind of decreases because, I mean, really just smoking is a way to decarboxylate and activate the flour and it's not the most elegant way. And it's when people catch on that there are other ways of doing it, they adopt those. I think that makes sense.
Roy: Yes, absolutely. And that will explain the popularity already of concentrates. Yes.
Matthew: Now, tell us how does the cost of flour in California compare to other states?
Roy: Yeah, that's very interesting. So we've sort of got a tale of two groups of states. So California and Washington prices are very similar for flour, they are about $8.80 per gram. Colorado and Oregon is significantly lower, around $5.60 each per gram. So you're seeing a premium in California versus Colorado and Oregon of about 35% at the present time. Interestingly, that premium does not apply to pre-roll products, edibles and to only a very small sense concentrates. So at the moment, flour prices are relatively high, but the prices of the other products are fairly similar to Colorado and Oregon.
Matthew: You mentioned you're in California for about a week every month and that the dispensary owners and operators are a bit nervous, a little anxious. Any other trends? Were you visiting dispensaries, talking with people? Anything else that stands out about what they're thinking about, what their challenges are, where the market's going in anyway?
Roy: Yes. Well, there's obviously a lot of energy and enthusiasm. I would say the Californian dispensary owner management are working, you know, 30% harder than everybody else. They start early in the day and they're working all the evening trying to understand the regulations, trying to understand when and how to apply for the temporary permits that they're gonna be granted first, trying to understand what it means for their consumers, trying to make sure that they're ahead of marketing and sales trends, making sure that they have the right products on the shelves. It's a very challenging environment. At the same time, there's tremendous optimism that now we're moving into a situation of being out in the open, publicly, confident that you are not going to get in trouble with the regulatory authorities provided that you comply with their codes.
Matthew: Okay. Let's zoom in on concentrates for a moment. Would you say this category is breaking away from the pack in general?
Roy: It certainly has done in all other states. So the trend has been, you know, Colorado is now four years of experience of adult use, concentrates over that experience have grown from about 10% to 27% of the market. Washington came along six months later, very similar trend, concentrates about 24% of the market. And then Oregon came along and allowed adult use, at the beginning of July, for concentrates and edibles of last year, and already that represents about 25% of the market. Now, California has been tracking for a lot longer in its medical market. And concentrates are certainly outgrown flower and edibles at the present time. As I said, edibles are about 12% of the market, pre-rolls at 5%. But concentrates are way up there at 25% of the market.
Matthew: And within that concentrates, what's the story there when we then break that down, that category? What is the data?
Roy: Yeah. So that's very interesting and California is quite different, certainly, from Colorado in that respect. So what we call vape products, essentially cartridges and disposable vape pens that are pre-loaded, they represent a booming 61% of California's total concentrates business. Whereas in Colorado, that's only about 36% of the market. Interestingly, Oregon, which is very new to this, is also similar to California. So new adopters seem to be adopting vape products in preference to shatter, wax, oils, live resin, etc. Colorado has a more sort of diverse population of those kinds of products within shatter, within concentrates, I should say.
Matthew: Okay, okay, that makes sense. And then, what about individual brands within there, that category of concentrates? Is it spread evenly or there're big players or how does that work?
Roy: Yeah, that's fascinating. So yeah, we looked recently at brand share, it's in the report that I mentioned earlier. And, you know, the top five brands in Colorado already represents 70% of the market which surprised me. It's a much more mature looking market than you would expect in concentrate. Well, California is not that far behind. In California, the top five brands represent 52% of the market and the next five brands are another 14%. So combined the top 10 brands are 66% of all sales of concentrates. So it's relatively mature, you know, this is a sort of inevitable process of the big companies emerging and taking market share and outperforming the smaller companies, unless they're disrupted by someone coming along with something radical and new.
Matthew: Yeah. And that's the only way really to get in is that they have something radical, new, different, has a different narrative around it, different benefits. One way to get in with these established players. Well...
Roy: Yes, so we'll have a better business model in some other way, more effective sales and marketing capabilities, better supply chain management, something like that. I think there's still plenty of opportunity for people, they're not radical and new with their products but more effective with the way they do business.
Matthew: I have this concern that all growers in California, nearly all of them, are gonna be wiped out by either huge players that can just scale that put so much investments in just scaling grow operations with automation and efficiency. And then the small kind of artisanal grower that has some special story around it, kind of like a vineyard or winery would where people really identify with the story or the fact that it's made in small batches and they can visit the grower or something like that. Do you see any kind of bifurcation like that or do you think that's where it's going? Or do I have it totally wrong?
Roy: No, I think you're right. I mean, if you can imagine that you're a concentrates or edibles company that's already doing something like $100 million in consumer sales in California at the moment, then you have the ability to either build your own manufacturing facilities or partner with others to build very low-cost per unit of production facilities over huge economies of scale there, and also to lock up a very stable supply of cannabis plant as well. So they have a huge advantage when they've got to that scale. Of course, I think there's plenty of opportunity for what you call the artisanal smaller scale producers as well in specialty environments. In a market that's growing so rapidly and is already so large, there's always going to be a category of consumers that is excited about something that appeals more to them because it's, in their perception, better or different.
Matthew: Yeah, let's pivot to edibles. What do California residents like there?
Roy: Yeah. So they like candy, candy products represent 29% of total edible sales. Chocolate comes second, not far behind, with about 24%. And then, infused foods, so your brownies and cookies, etc. That represents 17%. And interestingly, tinctures, which we include within edibles, is a large category too at 15% of the market followed by pills and beverages.
Matthew: Yeah. Okay. When you visit these...
Roy: And within candy, you know, the most popular is gummy candies which is the case in most other states as well. And that's where we already have some of the major players.
Matthew: When you visit these dispensaries, do you find they're doing a good job on their retail displays and putting the, you know, maximizing the return on investment by putting the proper placement of products and things out for people? Or is that still not that thought of much anymore because, you know, most dispensaries are pretty profitable even without having to consider that?
Roy: Oh, I think there's huge room for improvement there. I think that still, most dispensaries are using the judgment of the owner or store managers with regard to how much of the store to allocate to which types of products and which brands to make most prominent. I think it's still mostly done by gut feel, by relationships, by preferences of the budtenders. Of course, what we do is give the dispensaries the data that shows how they're doing by category, by brand, by item and compare that to the average of the state. Or in the case of California, we divide between Northern and Southern California, and then you can actually objectively choose which products to put on the shelves, which to feature based on what's growing most rapidly or already has the largest market share. That way, you can really mirror demand in the market. And some are getting very sophisticated at that, I'm very impressed by some of their dispensary partners out there. But there's a long way to go.
Matthew: Yeah. I used to wonder, you know, does this type of data drive dispensary owners and manufacturers into kind of a herding type behavior? And I would say, perhaps for some it does. But then, for others, it provides an opportunity, kind of like the Blue Ocean Strategy where they say, "Okay, I see where all the competition is. I'm gonna create a new category to something entirely different, you know, a freeze-dried cannabis drink or something that's like its own category that I can own." And that, I think, that drives some of that behavior.
Or they say, "I'm gonna play within one of these existing categories but just totally do something different. Maybe it's going to be a gluten-free brownie that has an effervescent aftertaste or something just bizarre or just novel or has some unique experience." So I've been thinking about that a lot lately because of this...I don't know if you've read that book, "The Blue Ocean Strategy," about how you just create your own categories and don't fight in the red ocean where the fish and the sharks are biting each other over the same thing but do something new within the category.
Roy: Yes. Well, I think we're already seeing that. For example, the fastest-growing category in Colorado last year, or subcategory in Colorado last year, was pills, or pills and capsules, to be more precise. That was barely in existence two years ago. And then, one company in particular and a couple of others came out products and they grew extraordinarily rapidly to end up being, you know, 7% or 8% of edibles already, and the current rate of growth will cross over 10%. So that's an example of that sort of radical blue ocean strategy.
And then, I'm also hearing from many clients who are developing new products that have special dosage mechanisms or delayed release or rapid release, of course, is more popular with edibles. So tincture, sublinguals, even breath strips, those kinds of alternative delivery systems. Nasals and inhalers as well. And at the moment, those are sort of negligible in terms of their market share. There are a few products here and there that are in the testing phase. But there are a lot of people who are pinning expectations around consumers going after those products who may be currently adopting vaporizers because they like the discrete nature of those products and the controlled dosage, but actually would prefer not even to use a vaporizer.
Matthew: I was a little surprised to see in your data that topicals were such a small percentage, such a small piece of the pie. Do you think the message on how to use those is not getting out to Boomers? Or what do you think explains that?
Roy: Yeah. I think it's actually partly to do with the channel of distribution, the licensed and regulated dispensaries and delivery services. Yeah, you're right, topicals capture less than 1% of the current California market. But actually, they're less than 2% in the other mature markets as well. You know, among them things like balms and salves are about half of the market. Cream is about 20%. And patches, patches are quite familiar to people who're following these things. There are only about 5% of the market at the present time.
I think perhaps, so far, people haven't had particularly impressive experiences with some of the products out there. There's certainly a number of scientists and doctors that are working on new technology where they are very sure of availability and efficacy. And maybe when we see some more data and some more science around those products, the consumer will latch onto them much more quickly.
Matthew: Okay. Is there any other ways the Californians stick out that you'd like to mention?
Roy: Yeah. Californians love infused pre-rolls which is interesting. So pre-rolls that have added concentrates with them as well. And that's a significant part of their pre-roll market and it's about 30% of their pre-rolled market, whereas it's negligible in most other states. So that's interesting. Also...Yeah, I would say that's the one that really stood out to us at the present time as being, you know, very distinct.
Matthew: Yeah, I imagine that pre-rolls are kinda always popular as little giveaways or things, "Come in today and," you know, "buy two pre-rolls, get the third free," it's always a popular marketing tool. I supposed the concentrate, it's kind of novel and also allows for more of a premium pricing there. So interesting.
Roy: Yes, yes. And, you know, it's convenient, and for new adopters, they don't have to learn how to roll a joint, etc. And therefore, we're seeing significant growth in pre-roll and interestingly, as I said, with infused pre-roll.
Matthew: Well, I'd like to pivot to some personal development questions if we could, Roy. And since you've been on the show twice before, I normally ask for book suggestions and, in the past, you recommended, "The Innovator's Dilemma," "Philanthrocapitalism," "Robinson Crusoe," "The Swiss Family Robinson," and, "The Count of Monte Cristo." But since we already know some of your book recommendations, I'd like to ask, if you were still in the cannabis industry but couldn't do anything with dispensary data like you are now, if you are in the business of providing that data and collecting it, what would you do with your knowledge? What opportunity would you pursue in the cannabis industry?
Roy: Well, obviously, I'm a bit of a data nerd. So if I can actually produce data, then I'm very interested in using data. And that's what I did in my previous company, a company called Renew Life that we grew from 30 million to about 110 million with digestive care products. And so I was using data from IRI, and Nielsen, and SPINS. I think I'd go right back to that and start brand-building in the cannabis industry, you know, using data from BDS Analytics, assuming that that was still around with me not being there...in order to figure out what the market opportunities are, what the niches are and targeting a new product development, special marketing campaigns pricing strategies. And so, all of those sorts of things that I've done before. And then, I know how to leverage data and I think there is a huge opportunity here in the United States to create some very, very powerful brands that ultimately will be billion-dollar companies.
Matthew: Yeah, great point. Your product is such an easy slam-dunk. I mean, all you have to do to be better than your neighboring dispensary is, you know, just implement the best practices in your data. I mean, if you just start there... I mean it's like it's...
Roy: Yes. We like to say we take the error out of trial and error. Most people are doing things right now by, "Okay, let's make one and see if it sells, let's test it with our friends, etc." And we make it much quicker or much easier, much less expensive to figure out what the category is, what's the growth opportunity now, who's the consumer and therefore, how do you want a brand and package that product to appeal the best to that target consumer so that you have much higher probability of a successful launch of those products?
Matthew: Yeah. Well, let's end with one final hypothetical here, Roy. Let's say, for some crazy reason, you had a great exit of BDS Analytics. Your investors and employees are super happy, all of your friends and family are healthy and happy. What would you do for just pure fun for the rest of your life?
Roy: What a great question. So I guess I think of about three things that I love to do. And ironically, you know, I would still like to do for-profit work. You know, I've trained in this world for 35 years now. I love building businesses, businesses with a heart and conscience, but I love building businesses. So perhaps I could do that more in a board member type of capacity. I did a lot of charity work, 25 years or so ago, in Africa, South America, India. I'd love to get back to doing that sort of thing, really getting exposed to the poorest parts of the world because you feel like you can have an immediate impact...it's very gratifying, it's actually a selfish pleasure, really, when you think about it to help people out in poor countries when you've got a bit of money to help them with that they wouldn't get any other way. And then, I'd love to combine that with travel. I've always loved to travel, my entire family has wanderlust, my father was in the Merchant Navy all over the world. So travel with a purpose, combining it with the charity work.
Matthew: Well, that's a great answer. Yeah, I can see what you mean by how gratifying it is because you can see such a big change quickly in an underdeveloped country where they go from nothing to a big improvement quick. Even something as simple as water, you know, getting clean water, how that changes up the whole dynamic of a village or something like that.
Roy: Yes, or getting shoes to a village or a soccer ball to kids that currently don't have one. It's amazing how little things like that, as part of a bigger effort, can make you feel so good.
Matthew: Yeah. Roy, as we close, can you give out your website one more time and tell listeners how they can connect with you and what type of businesses should reach out to you to become a client or just learn more?
Roy: Yes, Matthew, thank you. It's bdsanalytics.com. And we have services for dispensaries and license applicants to enable you to figure out which products to put on your shelves and how to match consumer demand. Our clients are growers, producers, and brands or people intending to get into that space who are developing their business plans. And you've heard how growers and producers and brands can use our services for sales, marketing, and product development benefits. And then also, investors are very interested in the way the world is going and growing. And, of course, we not only have the GreenEDGE point-of-sale data, but also the consumer insights services that I mentioned earlier on. So many companies are now beginning to say, "Okay, now I understand my market share but I don't know who my customer is." And so, we're helping them to figure out and then target very precisely the most attractive customer categories and segments.
And finally, of course, in conjunction with our partner, Arcview Market Research, we write the, "State of Legal Marijuana Markets," it's a big annual book that comes out as a best-seller in the industry. And also, "The Cannabis Intelligence Briefings." And we do provide custom consulting projects for large companies and small who are investigating the industry.
Matthew: Roy, is there any special way that dispensary owners can get involved and get these insights for themselves?
Roy: Yeah, absolutely. Thanks for asking. Yes, of course, dispensary owners and dispensaries can join our panel and they actually get the GreenEDGE service completely for free. All you need to do is set up access to your point of sale data. We anonymize it, aggregate it into a database and then you can get the full access to the dispensary point-of-sale service, you can look at your own sales, you can compare them to the state sales. So if you have a dispensary in California or, for that matter, any other state, let us know, we'd be pleased to have you participate in the panel and get all of this service for free.
Matthew: Well, thank you, Count Dracula, for coming on the show and educating us. We appreciate. That data is so valuable. Good luck with the rest of the year and we'd love to have you on the show again when you have some new data to discuss.
Roy: Well, thank you very much, Matthew. I shall go and try and find some blood now.
Matthew: Okay. Thanks, Roy.