In its most recent forecast for the U.S. cannabis industry, BDSA projects that despite falling sales in some of the more mature markets, cannabis sales nationally will continue to increase, growing to $42 billion in 2026. “Despite an inflationary environment and concerns about recession that dampened consumer spending, legal cannabis sales in the U.S. will reach $27 billion by the end of 2022, a jump of 7 percent over 2021 sales of $25 billion,” said the Colorado-based company.
It was positive news that appeared to be partially mitigated by a somewhat gloomier prediction. “The U.S. market continues to see topline growth, though some of the most established markets are starting to see sales slow,” added BDSA in its updated forecast. “These markets may soon face saturated consumer penetration as BDSA data reports that the past 6-month adult adoption topped 50 percent in fully legal markets in the spring.”
The market intelligence firm also expanded its focus to include yet another far rosier view, adding, “The report projects global cannabis sales to grow from $30 billion in 2021 to $55 billion in 2026, a compound annual growth rate (CAGR) of almost 13 percent.”
Seemingly inconsistent, that range of assessments in fact exemplifies the broad, deep, and data-reliant foundation of BDSA, formerly BDS Analytics, which was co-founded by former and current CEO, Roy Bingham, who spoke recently with CBE about the industry’s escalating need for market intelligence as it evolves and matures, and how BDSA intends to meet that demand far into the future, as it has since the company’s founding in 2015.
“We brought in another CEO about three years ago with the intention that they would replace me as the CEO of the company, and I would move into the executive chairman role,” said Bingham of recent changes at the top. “The intention had always been that I would move into more of a backseat director position, which I did, and maintained that for about 18 months, and then the Board felt that, given the challenging environment in the industry that was emerging, they would like to see me come back in capacity as CEO, so I did in May of this year.”
Did that mean reevaluating the company’s goals or strategies to address those challenges and meet demand? “Our strategy and plan are to be the leading data analytics company for market research purposes in the cannabis industry – that’s the status that we’ve achieved over the seven years since we got started – and to continue to grow in that space, and grow as rapidly, or more rapidly, than a fast-growing industry,” replied Bingham. “We’re in an industry that’s going to approximately double over the next six years and has grown faster than that over the last seven years – so, very good growth environment – and in terms of demand for our services, in other industries, typically, something about between half and 2 percent – it does vary depending on the industry – of all the revenues in an industry tend to go to data and metrics for market research. And so, we set that as our goal, to capture our half to 2 percent, together with other companies; we know we’re not the only company in this space.”
Are industries outside of cannabis of interest to BDSA? “Our focus is exclusively on the cannabis industry, and our strategy is to provide the most accurate data that is possible,” he said, adding, “Accuracy becomes more and more important as our clients make bigger and bigger decisions based upon this information. We have worked in other larger industries and seen people make multi-million-dollar decisions based upon the data that we were providing, and we know that the key is to have accurate data that is updated frequently. That is very well understood by our clients because they are making big decisions now.”
Large or small, most cannabis-related business decisions are consequential, something BDSA has been trying to help with for years using time-tested tools it continues to refine. “What we do is Retail Sales Tracking as the primary service, but we also do Market Forecasts and Consumer Insights. That’s what our clients rely upon us for,” explained Bingham of BDSA’s core product offerings. “Retail sales tracking is knowing what is being sold in great detail in the market. Market forecast is taking that, together with our knowledge of consumers, and projecting what’s going to happen in the future in the markets from both a consumer point of view and a product and product category point of view. Consumer insights is about understanding the consumer not just demographically, but consumer behavior patterns, purchasing habits, etcetera.”
Currently, BDS offers Retail Sales Tracking for medical and adult-use markets in Arizona, California, Colorado, Florida, Illinois, Massachusetts, Maryland, Michigan, Missouri, New Jersey, Nevada, Oregon, and Pennsylvania, measuring dollar sales, unit sales, share, average retail price (min and max), availability, % ACV, and velocity. BDSA offers Market Forecasting globally (40 countries), for the U.S. and Canada, by state and by province. Consumer Insights, offered in the U.S. and Canada, measures demographics, psychographics, attitudes, consumption behavior, product usage, purchasing dynamics, and product choice influencers
I mentioned a recent interview with Metrc and its use of government-owned data for track-and-trace, but also the value the data that flows through it potentially has for companies as well. It’s apples and oranges, said Bingham. “A company like Metrc does something quite different from us, and when I talk about the half to 2 percent of the industry, I’m not including services like Metrc or BioTrack. I’m just looking at data for market research purposes. So, for an industry in the United States of about $25 billion, we see the market potential as being $125 million or more for what we do. It isn’t there yet. This takes time to mature as companies become more sophisticated and more able to pay for the kinds of services that we provide and more justified in paying for those services, because they’re making bigger and bigger bets.
“With what I see happening in the next five years plus, consolidation – at least within reason –actually increases our market opportunity,” he added confidently. “You’re right that if it was extremely consolidated that might be a challenge for us, but no other industry has gotten so consolidated, and one or two companies represent half the sales in the industry, therefore it could be argued that we don’t have enough client base.”
Have the methods and sources for gathering and interpreting data changed much over the years? “Retail sales tracking has not changed dramatically but is automated extensively,” said Bingham. “It used to be a matter of having to download data manually, and then of course we had to clean up that data dramatically. But now, all of our data is automated in terms of downloading, and a significant amount of our cleaning up of the data – by which I mean, standardizing the data – is also automated. So, that’s an improving process, and of course we’re handling vastly more data than we used to and handling it much more frequently as well.
“When we talk about the consumer insights,” he continued, “that has not changed dramatically, because longevity is important. We survey consumers on a statistically significant basis in all of the major markets, and we do that twice a year with an online survey. There are some clever things that get done to make sure it is a well-done survey, but on the whole the methodology hasn’t changed dramatically over the last six years. The market forecasting does get more sophisticated so we use the other two data set, plus we use state-published data and other information that’s available, and more experience means you can have a better assessment of what’s going to happen from a regulatory point of view, for example, how long things are likely to take before markets open up, and what they are likely to look like once they start to grow.”
Are BDSA’s forecasts and projections machine-driven, including using AI, or is human analysis used to interpret the data? “Human analysis,” assured Bingham. “We’re not at the point yet where it can be done with AI, certainly not the market forecasting. For consumer insights, we use simple statistical systems that are highly automated, and for the retail sales tracking, we use what is best described as machine-learning, which is sort of the beginnings of AI, but not really.”
When he said there is more data flowing through BDSA, did that mean there are more sources of data, literally more POS terminals? “Yes,” he said. “We started off with one retail location in Colorado, expanded that base within Colorado, and then to California, Arizona, Oregon, and across the country. We have had a massive increase in the number of dispensaries that are our partners and the volume of data that we’re processing from them.”
Are there particularly volatile data-sets or categories? “It’s dangerous to generalize, each market is different, and of course in this industry that means that each state is different,” said Bingham. “In some of the mature markets, we’re not seeing massive numbers of new products and new product innovation anymore, but they already have 100,000 products. Whereas you go to a new market like adult use in New Jersey, you’re talking about only hundreds of products at the present time, and that will expand no doubt to thousands rapidly.
“That’s an example of a volatile data-set in the fast-growing new states, of course,” he added. “It’s volatile in many ways, not just in terms of what the products are, the product characteristics, and the market shares of those products, but also prices changed significantly in the early years of the market, and we’re also seeing price volatility in the metro markets as well.”
When evaluating all of this data and the sales patterns it contains, do local trends lead with larger trends derived from them? Does analysis start small and then emanate out and become larger?
“Yes,” replied Bingham. “For us, it’s extremely granular. It literally starts with one product being sold at nine o’clock in the morning at one dispensary in one town, and it’s sold for $20. That happens hundreds of thousands of times in a day, and all of that data gets aggregated up, but it starts as granular as I just described. And then our clients are able to log in to their data set, and they can then go as granular as they want to. So, they can look at what sold last week, and how did that trend up compare to the week before. They can look in an aggregate sense, or they can look at a category level. They can say, ‘I’m interested in ingestibles,’ for example, or ‘I’m only interested in smokables.’ And then, within ingestibles, they could say, ‘I’m really interested in edibles,’ or within edibles, ‘I’m interested in gummies,’ or chocolates or beverages. And they can say, ‘I’m really interested in products that sell between $15 and $20,’ or ‘I’m really interested in products by my brand’ or ‘by my competitor’s brand,’ or an individual product.
“And they can dive all the way down to that level of detail to see what the market growth characteristics are and who’s succeeding and what’s succeeding, and they can see what price differentials there were that might be driving some of that growth as well,” he added. “But then, of course, that can all be aggregated up to see overall trends. And so, when we talk about market forecasts, and when we talk to the media, there tends to be more of a discussion about things like what share of the market in the new markets is represented by concentrates or edibles versus flower; what are the norms that get established in more mature markets, and therefore, if we’re looking at, say, New Jersey, which [markets] do we expect to grow most rapidly going forward?”
Does BDSA also provide consultation services to help people with their business decisions? “We are fundamentally a software as a service company,” said Bingham. “We give our clients a lot of training, and they log into the system and answer their own questions. They become the experts in their data, but we do also have account managers who are experts in how to use the system and they become very well-informed about our clients’ needs as well. It becomes a team effort, and then from time to time, a client will want to do some kind of unique analysis, some specific type of report – maybe they want to look at price elasticity in a unique market or something like that – and then we will do a custom data-set for them.
“Everything that we do is data driven,” he added. “We provide ways that clients can access data in order to make their own decisions. We’ll show them how that data is assembled and give them context for that data, and they may bounce ideas off us, but we never tell anybody what to do.”
I noted a recent remark Bingham had made to Forbes that the “’hockey stick‘ trend of sales growth seen in the early years of legal cannabis has passed,” and asked Bingham whether that fact influenced its interpretation of the data. How were we to think about the end of the era?
“It’s a very unique industry because of the state-by-state regulatory environment, so what we have to remember is, we’re actually talking about 50 different industries,” he said. “No other consumer product is like this. When you think about the hockey stick for alcohol, you’re thinking about that in a national picture; when you think about the hockey stick for groceries, you’re looking at a national picture, whereas what we’re looking at with cannabis is 50 hockey sticks.
“And unless there’s a federal change, that’s going to continue to be the case,” he added. “So, some of them were right down near the bottom of the hockey stick. In others, it’s flattened out and we’re in a normal kind of ongoing operating environment, like most other industries. The challenge, therefore, for national operators is to operate differently in different types of markets yet still be cohesive as a business, which is obviously very challenging if right now, say, you’re facing fierce competition and price reductions in California in order to compete with other companies in the regulated market and the illicit market. That is massively different from the environment in a new market like New Jersey.”
In this jigsaw puzzle map lots of cannabis companies and brands are setting up shop in multiple states, of course, and looking to add new ones all the time. Does that mean BDSA has to provide state-specific data in addition to larger data-sets on national trends?
“We aggregate state-by-state and many of our clients, as you’ve indicated, are either already operating in many states or are very interested in additional states because they’re considering expanding into those states,” said Bingham. “We’re already providing an aggregated view, either regionally or nationally, of a market, and in every other industry, although they don’t grow state-by-state like the cannabis industry, there are still regional variations that are very important for market research analysts to understand. So, people will still want state-by-state [data] for the foreseeable future even with federal legalization, and they also will want regional – northeast versus Midwest versus West Coast – because that continues to be meaningful as part of an overall national analysis.
“What we’re about is giving our clients a leg up in whatever market they’re interested in,” he added. “We’re about providing the best, quickest, most accurate data that they might need, and of course as those clients get more and more sophisticated and there’s more and more data available, it’s their ability to extract or use the right data cleverly that differentiates them.”
I observed a certain irony to the fact that there is so much uncertainty about what’s going on in the cannabis market and yet there’s so much data from and about it, which tells me that the data is sort of fighting against the forces of uncertainty, which are mostly regulatory. “That’s a good point,” said Bingham. “Data is of course informing people like us with our market forecasts, and our clients with their deep analysis, on what is likely to happen if regulations change, or because there’s been a legislative move in a certain state, how long will it take before it gets implemented, and will it be implemented the same way it is in another market? Is it going to be like Florida, is it going to be like California, or is it going to be like Massachusetts; all sorts of different models are being incorporated into people’s projections of these new market opportunities.”
Data-Dependent
Considering the stakes, one would think cannabis companies large and small need data like a starving man needs food. “I wouldn’t do anything without data,” stated Bingham, “and in fact, one of the reasons why we got behind creating videos, apart from our prior experience in other industries, was that people ask questions like, ‘What products should I do first?’ Without data, I have no idea, and so I’m not going to spend a nickel on anything until I have found out what share of the market the different products are, which product category seems to be growing most rapidly, and which has the longest-term consumer appetite, and then I’ll start focusing more specifically within that category on what are the characteristics of that product, what price point seems to be the one that is likely to resonate with consumers, what potency, what delivery form, all of those other factors, again, driven by data, which enable me to be cost-effective when I actually start to create something.”
Sound thinking, to be sure, and probably shared by the legions of new executives coming into the industry. “They’re coming in from beverage, alcohol, tobacco, consumer packaged goods,” said Bingham, “and they’re already very sophisticated in their market analysis.”
Does that mean that they are more demanding of their services than previous incarnations? “They use the services more extensively,” he said, “and in that sense, absolutely, for the services to be similar to the kinds of things they’ve used in other industries, which is sometimes hard for us, because the cannabis industry is not as mature, so certain data can be hard to come by.”
That sounds like an opportunity for a company like BDSA, but it also could mean hiring more staff. “A lot of it is engineering, building better software to ingest data, partnerships to find the data, and then software to clean up that data and organize it into databases, and then software to display that data for our clients in the way that they want,” explained Bingham. “And that’s a lot of our expansion. Yes, we need people, and people represent our largest single expense by a long way, but to grow, actually it’s now more a matter of improving the technology.”
If someone were to come to BDSA and ask for help with a new market. For instance, ‘We want into Thailand, and we need your help with data,’ do you respond, ‘We’re on it,’ no matter what market it is? “No, we would have to form an assessment of whether it was going to be profitable for us to gather data in a particular country where we don’t have a supply of data, analyze that data, because it’s all different, and then create a product for our clients, so we have to prioritize among the market opportunities that are out there,” said Bingham.
But do you anticipate a time when, wherever the cannabis market is, you will be deriving data from it? Is that an aspiration? “Yes, it is our aspiration to be global,” replied Bingham. “We already cover global markets at a relatively high level with our market forecasting and with some of our consumer work, but the markets have to grow significantly before we are going to be able to track them like we do in North America.”
Is it an effort to maintain the sources that provide data once they’re in place? “It’s the usual thing,” said Bingham. “You have to maintain your existing sources, which means maintaining existing relationships, while moving into new markets and attracting new partners as markets grow. So, it’s a combination effort all the time of making sure that our existing data partners are happy with the service that they’re receiving in return for the data they’re providing, and then bringing in new data partners, both within the established states and in the new states, for example, the new provinces, or ultimately, maybe the new countries.”
I mentioned to Bingham the number of people I have interviewed who swear by their reliance on data to run their business, but it still seems as though data is siloed and not used as efficiently as it is in other industries. “It’s coming,” he said. “The industry has leapfrogged over some other processes that would have normally happened as it matured; we’ve probably achieved five years of progress in two or three years. It’s kind of like cell phones in Africa, where people haven’t bothered building the infrastructure for old-fashioned telephones because they skipped straight to cell. This industry has gotten more sophisticated quicker, partly because of people coming in from other industries. They are able to build the infrastructure, they know what they want, and we’re getting to the level of sophistication of other consumer packaged goods industries. We’re not there yet, but we’re gaining on them rapidly.”
Our time running out, I circled back to the current state of the industry and asked if the tough economic circumstances – the fact that people have nowhere to turn for capital, that capex is being scaled back – impacted the types of things that people are doing, and whether what they ask of you impacts your business.
“Yes, it certainly does,” said Bingham. “As people are feeling expansive and well-capitalized, then they’re starting to ask bigger picture questions about new opportunities. Right now, they’re more focused on what’s going on inside this subcategory within this smaller market to make sure that they’re making the most of their opportunity there. So, yes, as soon as capital dries up, you end up focusing on shoring-up your existing business and try to turn a dollar with your existing business. And therefore, the analysis is still ongoing, but it’s looking at what do you do when you don’t have millions of dollars to invest in something new, and you’re already somewhere, then how do you make the most of that situation.”
Is cannabis recession-proof or recession-resistant, or has that already been answered? “That’s a very interesting question,” said Bingham. “From an analytical point of view, the fact that we have these 50 different markets is interesting to address this question, isn’t it, because I used to say it will be hard to strip out the growth that is taking place in a new market in order to identify how much of it is resistance. But the reality is, when we look at the individual markets, we see California contracting, Colorado contracting, Oregon contracting, Washington contracting at the present time, and there are all sorts of factors at work in those markets, but there is a window of opportunity to understand consumers and whether recession or fears of recession are going to reduce their consumption.
“We think it’s fairly resistant,” he added. “The challenge is whether the regulated and legal market is resistant to economic downturn or is it that people can still find product in illicit markets at lower prices, and they’ll go there, and therefore, cannabis is relatively resistant, but not the legal cannabis market.”
Considering the current turmoil in many of the cannabis markets, has Bingham seen major mistakes being made either by states or companies? “At the regulatory level, we see mistakes being made, and California would be a classic example, with excessive taxation, a very challenging regulatory environment essentially making it much easier for the illicit market that pays no taxes to compete with the legal market,” he said. “We see that as being a mistake that doesn’t help the California regulators and doesn’t help the industry in the long run. In terms of businesses, I have seen mistakes in the past. I’ve seen companies who were outrageous in their expectations, or at least in what they were saying publicly about how big markets would be and how rapidly they would grow, and therefore deploying capital in very large quantities in ineffective ways. I wouldn’t say I’m seeing that at the present time.”
What in his opinion would be the most effective catalyst to spur growth in the legal market? “I think the most important thing right now is the thing you just described, companies being short capital,” said Bingham. “Capital will come when investors are less afraid of the risks associated with this novel industry. But it will return at some point, and it might be spurred by regulatory change of course. A change to the tax code would have a very dramatic effect on the profitability of many companies in the space. Making banking easy would be a significant improvement for most companies in the space. But also, capital comes in as economies improve and as market forces change and people start to get an appetite for investing at all, and then get an appetite for investing in perceived higher-risk, higher-return markets like the cannabis industry.”
Bingham added, “Our projections are assuming not much federal change in the near term,” but that was before President Biden’s announcement on federal pardons and revisiting the DEA’s scheduling of cannabis. CBE has reached out to see if Bingham wants to reevaluate that appraisal in light of the president’s actions.
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