Despite a growing industry trend toward highlighting terpenes and more complex cannabinoid profiles, cannabis customers are still looking for potency, especially in more mature legal markets.
That is one of the main findings from research carried out recently by the cannabis market research firm BDSA, which has found that 52% of all pre-rolls sold in California, Colorado, Nevada, and Oregon are infused. This represents a 10% increase in the market share for infused pre-rolls from the second quarter of 2021 to the second quarter of 2023, according to BDSA.
Across all 14 cannabis markets analyzed by BDSA, infused pre-rolls represented a 39% share of all pre-rolls sold.
Speaking to Rootwurks earlier this month, BDSA analyst Brendan Mitchel-Cheseboro said that the firm focused on California, Colorado, Nevada, and Oregon because they are veteran legal cannabis markets that have a more developed brand landscape and more experienced, sophisticated customers.
Why are infused pre-rolls growing in popularity?
Mitchel-Cheseboro said that when polling cannabis consumers, the top three benefits of inhalable consumption that consumers are looking for are relaxation, managing stress, and better sleep. He added that the first two motivators - relaxation and managing stress - would be more typical of recreational cannabis consumers, who are more likely to prefer higher-THC cannabis products.
He stated that high THC content is consistently one of the top three drivers for product choice, including among 38 percent of inhalable product consumers.
Declining cannabis prices have also played a role.
“Pricing has gotten a lot less prohibitive over the past two years. Across all categories and all markets that we track, average retail prices have declined about 30%. So an infused pre-roll product that might have been just out of somebody's price range is a lot more approachable now for people who are really price conscious.” Mitchell-Cheseboro said.
What does this mean for cannabis producers?
For pre-roll companies, increased interest in infused products means an opportunity to increase revenue.
According to BDSA figures, infused pre-rolls have a 63% higher average retail price (ARP) than their parent category.
“There are definitely value-adds here. Brands have an opportunity to price up infused preroll products not just because of the high THC, but also because convenience is a really big driver of product choice for consumers,” Mitchell-Cheseboro said, adding that “brands can take that into account when they're looking at pricing.”
What about the move towards terpenes?
In recent years, there has been a push in the industry to educate consumers about the importance of the terpene profile in cannabis products, and how it affects the taste, aroma, and psychotropic effect of cannabis varieties and products.
Mitchel-Cheseboro said that while there has been pushback in the industry against the focus on THC level, and a greater emphasis on the full terpene and cannabinoid profiles of products. But, he added, consumer knowledge of terpenes is still not very high.
“A lot of people in the industry recognize that there are new consumers who might not be looking for the highest THC product. They might be brand new to cannabis and want something to kind of get their feet wet and not give them an experience that's overwhelming.”
For more experienced consumers though, the THC percentage will remain very important.
When it comes to edibles though, there are limits on how much THC each package can contain, thus limiting how much the industry can pursue potency as a product differentiator for edibles.
Regarding cannabis concentrates, Mitchel-Cheseboro said that the market has somewhat leveled off, and today represented about 6% of all legal cannabis sales in the third quarter of 2023, a decrease from 9% in the third quarter of 2021.
Mitchel-Cheseboro credited this in part to the fact that since 2021, many new legal cannabis markets have opened and those adult-use markets have high numbers of new cannabis customers who are less likely to try an extract product over more familiar products like pre-rolls or gummies.
What should we expect in 2024?
When asked what BDSA expects to be some of the big developments in legal cannabis in 2024, Mitchel-Cheseboro said that he believes the hemp-derived cannabis market will play a big role in the overall legal cannabis market “and is here to stay.”
He said that hemp-derived products have huge potential and a huge potential customer base, largely because of the scant retail availability of other cannabis products. in large legal cannabis markets like New York and California.
“There are still a lot of areas where there is not great availability of cannabis retailers in California which is limiting the growth of the market. Hemp-derived cannabinoids can be available in more places and because it's legal under the 2018 Farm Bill, it doesn't have a lot of the associated headaches that come with dealing with legal cannabis.”
In the BDSA market forecast for 2024, the group states that U.S. cannabis sales are forecast to grow by 10% in 2024. BDSA also lists five major predictions for the year to come:
1: The development and availability of intoxicating hemp products is a game-changer for the legal cannabis market that will have major implications, providing both unprecedented opportunity and unprecedented risk.
2: Constrained retail availability and illicit competition will continue to limit the New York adult-use cannabis market.
3: While category share across major product categories has stabilized, consumer preference for convenience will continue to drive shifts at the subcategory level and innovative products like disposable vapes will gain popularity.
4: As mature markets stagnate, brands will be able to use in-house genetics and proprietary strains to differentiate themselves within the flower category and drive brand share growth.
5: Price-conscious consumers in emerging markets will drive significant gains in the shake/trim/lite (STL) category.
