An Update on the Cannabis Market with Giadha A. DeCarcer
Giadha A. DeCarcer, the founder and executive chair of New Frontier Data, first joined 12 Geniuses back in April 2019. In that episode, she met with Don to discuss the growth of the global cannabis market. In the short period of time since the episode aired, the world has seen a greater increase in the potential of cannabis than could have been predicted. Giadha and Don meet again to talk about changes in both cannabis investments and usage, the innovations we’ve seen in how the plant can be grown and the prospects of further legalization in the U.S. and countries around the world.
New Frontier Data is a data and analytics company focused on the global cannabis industry. Over her career, Giadha has worked in banking and the intelligence community, and founded and run multiple businesses. She was born in Rome, speaks five languages and bases her work for New Frontier Data in Washington, D.C.
Resources From This Episode
Connect with Giadha on LinkedIn
Follow Giadha on Twitter
Learn more on the New Frontier Data website
Connect with Don on LinkedIn
Follow Don on Twitter
Transcript
Don MacPherson:
Hi, this is Don MacPherson, your host of 12 Geniuses. Giadha Aguirre DeCarcer is CEO of New Frontier Data, a data and analytics company focused on the global cannabis industry. Giadha joined us in Season One of the podcast. Today, she updates us on the continued growth in the cannabis market, innovations in the industry and the prospects of legalization in the US and other countries around the world. This episode of 12 Geniuses is sponsored by the Think2Perform Research Institute, an organization committed to advancing moral, purposeful and emotionally intelligent leadership.
Giadha, welcome back to 12 Geniuses.
Giadha A. DeCarcer:
It's so nice to be back, Don.
Don MacPherson:
Just to remind our audience, we spoke March 27, 2019, about two-and-a-half years ago. What has happened to the investment market for the cannabis industry?
Giadha A. DeCarcer:
Obviously, COVID happened. And so COVID has had multiple layers of impact into the industry as a whole and on the investment as well. But candidly, I think it may be misperceived that the investment has slowed down. Because what has happened, in fact, is that the number of deals have decreased, but the size of the deals have increased. For instance, we are closing now, as of May of this year, we're looking at raises totaling close to $9 billion. At this time in 2019, we were close to $2 billion. So it really has tripled. This is very much due to a different kind of investor that's been attracted to the industry, which is a result of the increase in consumption we have seen across North America but also globally, attracting mainstream brands primarily in the CPG groupings — sort of food and beverage, health and beauty — and consolidation in the space as well. I think there's a little bit of misperception around [the] slowing down of investments going into the industry just because, as I said, decrease in number of deals, but definitely much larger checks.
Don MacPherson:
When we spoke, you had mentioned that consumption in the US was about $7 billion in 2016, and U.S. and Canada was a combined $12 billion in 2018, and we were on our way to about $32 billion in North America for 2025. Where are we on that? Is that still the projection out to 2025?
Giadha A. DeCarcer:
Again, COVID happened. We saw a tripling, almost quadrupling of the average cart of the individual cannabis consumer across North America. So right now, our 2025 projections are actually at over $40 billion. We're close to crossing the $25 billion mark this year. That's for U.S. alone. We sort of expected this. As of Q1 of last year, we had already begun to see an increase. I don't know if you remember, towards the end of 2019, while of course we could not have seen COVID happen, there was a beginning, there was a sensation of some kind of economic downturn, recession. And so we had begun to analyze the potential impact of an economic downturn onto the cannabis industry.
Our expectation at that point, again pre-COVID, was the cannabis industry was likely going to end up in a recession-proof category, like tobacco, alcohol, Netflix, chocolate, just because the application of cannabis, right? We know that in the United States and globally, the top three reasons for consumption are anxiety, stress, lack of sleep. What happens during an economic downturn? A lot of stress, anxiety and lack of sleep, beyond the chronic pain applications. And of course, COVID had a multiplier effect with that. So consumption just exploded.
Don MacPherson:
Shortly after we first spoke, there was an inability to meet the demand in Canada. Am I remembering that correctly?
Giadha A. DeCarcer:
That is correct.
Don MacPherson:
Yeah. Where are we with the ability to meet this incredible demand? I mean, it's really spiked, and I don't know that we could have predicted it, like you said.
Giadha A. DeCarcer:
We're sort of on the same boat. It's gotten a little more complicated, in fact. One of the things that's occurred with this explosion of consumption and especially triggered, by the way, by also late last year, the United Nations descheduling cannabis, which was one of the recommendations by the World Health Organization. What we've seen is also an increase in number of not only states in the US, for instance, but also in nations worldwide, of legalization. So today we're about 70 nations. With that, we now have this global market with a very fragmented regulatory system that's making it very difficult to have some standard around how is supply and demand going to align in a more optimal manner. And exacerbated by the fact that while nations and states are having difficulties meeting demand and supply, what are they doing? They're trying to just meet that and hedge that with external supply, making the entire equation much more complicated because, again, of the regulatory framework fragmentation.
Giadha A. DeCarcer:
It's now not only a challenge that we're seeing in the U.S. and Canada, it's a challenge that we're seeing at a global scale. There's a lot of work that needs to happen from a regulatory perspective at a global scale. If we start national, that'd be great. Then the next step would be to standardize in some shape or form at a regional level. The hope is that someday in the near future, also, we'll have some better global understanding and visibility so that we can actually see some stabilization of this supply-and-demand misalignment.
Don MacPherson:
You said that 70 nations have decriminalized cannabis. I think the last time we talked, it was just maybe two countries, and then Australia was coming in.
Giadha A. DeCarcer:
Isn't that nuts, that in just such a small amount of time we've gone from two to three nations to 70 — in half of the time that it took us for the United States to legalize the same number of states? It's insane what's happening.
Don MacPherson:
In these countries, it's fully decriminalized, including recreational use?
Giadha A. DeCarcer:
No. The global market, if we're going to call it that, is primarily a medical CBD market. There's still very few nations that have decriminalized or legalized adult use. That list remains very, very short, and we don't expect that to change. The medical applications is really what's driving adoption.
Don MacPherson:
And where are we in the U.S.? When we initially spoke, it was eight states for recreational use and about 30 for medical use. We keep hearing about states changing regulation, including my state. In Minnesota, we have approved cannabis for medical purposes. What are those numbers now?
Giadha A. DeCarcer:
We're at 18 for adult use and 38 for medical. So in essence, today, 70% of Americans have access to some form of legal cannabis.
Don MacPherson:
So that begs the question, where are we with federal legalization? Because it seems like, the writing's on the wall, let's legalize this on a federal level.
Giadha A. DeCarcer:
Well, you know from New Frontier Data's perspective, I can only speak to what we have facts to substantiate.
Don MacPherson:
Yes, I know that.
Giadha A. DeCarcer:
Alas, the political crystal ball is something that we do not have. Are we closer to federal legalization? Yes, of course, we are. Does that mean it will happen in the very near future? No, it doesn't mean that. It's complicated. But what is important to note is that federal legalization or no federal legalization, the U.S. cannabis market will continue to evolve and mature. Some of the challenges of the lack of federal regulation continues to be around access to capital. So banking, loans and then processing of payments and things of the sort. And those continue to be challenges. But at this point, there's so many states and there's enough capital flow and enough consumption that operators are finding the way around it. And so it's certainly not a show-stopper, for lack of a better term.
It's also interesting to see from a U.S. national acceptance perspective, just from America, how Americans are seeing the plan. We're beginning to see legalization in red states. I mean, we have Mississippi, we have South Dakota. So that certainly bodes well, right? That is an indicator that more and more red states are getting on the bandwagon or interested in, not the medical benefits, certainly the revenue generation associated with the legalization. So we're getting closer to that.
Don MacPherson:
One of the things that we talked about initially, in our first conversation, is where this is being grown in the United States. Have we seen anything new in terms of where cannabis is being grown in the U.S.?
Giadha A. DeCarcer:
It's being grown everywhere now. One of the things that's happening on the global scale is also the emergence of centers of excellence, meaning that there are certain regions and countries that are specializing in certain aspects of the plant. Cultivation, per se, is something that we're beginning to see as the optimal portion of the industry in regions like Latin America and Africa, or countries like Colombia, right, or countries like African nations. We have Zimbabwe and others that are beginning to sort of position. In the United States, we continue to see that in warmer-weather climates.
However, you have to understand that there's also innovation. This is one of the things that North America is emerging as a center of excellence. All innovation when it pertains to technologies that are supporting optimal cultivation and processing and extraction are really in the United States and Canada. And so with those technologies, you're seeing the ability to grow cannabis regardless of weather conditions or climate or any of the other aspects. What it is doing, however, is obviously impacting the price. And that's something that we'll be tracking more closely. We're working on indices, in fact, to predict those fluctuations, as well. But in terms of the ability to, there's enough demand, and the cannabis consumers willing enough to pay for access, that the limits are no longer what they were three years ago.
Don MacPherson:
During our first conversation, you said that China accounts for about 95% of hemp production. Is that still accurate or have other countries started to make inroads there, as well?
Giadha A. DeCarcer:
Well, now China is down to half. And that's what I mean by truly a global explosion.
Don MacPherson:
So I'm assuming that's not a reduction in production from China —
Giadha A. DeCarcer:
No.
Don MacPherson:
... but just other countries. What are some of those other countries?
Giadha A. DeCarcer:
As I said earlier, when we think of cannabis legalization outside of North America, you were looking at hemp and CBD. So you can almost assume that everyone else, that's what they're doing. But in terms of nations that are really emerging with the ability on their own to truly have an impact at a global scale, I would say the nation that certainly could do that is India. There are two provinces in India that have legalized. There are another two or three that are looking to legalize. India is a nation that had been already cultivating hemp for fiber in a very limited manner, not at all at the scale of China. Also remember, China has been doing it for over 30 years, and the way that they cultivate is almost completely automated. I mean, we're talking drones run the cultivation. So they have a level of sophistication that India is not yet at the level, like, at all. But in terms of capacity and know-how, India certainly could be a nation that will give China a run for their money.
Don MacPherson:
Has there been much change in public opinion here in the United States regarding either medical cannabis use or recreational use? I think we started your episode with, "Nine out of 10 Americans support the use of medical marijuana." So it's like, I can't imagine that we've trended backward.
Giadha A. DeCarcer:
We're not. I'm not going to say that we're 100%. But as I said, the fact that 70% of Americans have access to some form of legal cannabis today is indicative. The fact that we're beginning to see red states legalizing is indicative. Beyond Mississippi and South Dakota, and obviously Florida passed it, but also we have Texas that's in the running and other red states. So the legalization wave in the U.S. is now almost a decade old. The type of misinformation or lack of information that we experienced when I founded the company in 2014 is literally matters of the past. We've catapulted forward in terms of an insane amount of information about this industry, a lot of interest. Mind you, there still is unfortunately a lot of misinformation, but at least there is information and awareness.
And so from a national perspective, Americans, I think, have gotten to the point where they understand there are benefits to the plant. It doesn't mean that everyone is ready to sign up and vote for legalization of adult use, but on the medical side, I could make the blanket statement that America is OK with the medical applications of the plant.
Don MacPherson:
So you're celebrating your seventh anniversary. I think August 15, you'll be seven years old as a company. What significant changes have happened in the last two-and-a-half years at New Frontier Data?
Giadha A. DeCarcer:
The biggest thing, you know what, it goes back to this trend that we've been following for the past four years in terms of the attraction of mainstream consumer packaged goods verticals into the industry. So about two years ago, we began to see the interest, and we expected to see maturation of the interest around last year and this year and next year. And it has in fact happened and in an expedited manner. And so, as such, we've really focused on finding the best way to serve and support these mainstream brands across food and beverage, health and beauty that are coming into the space. And so we have launched an adtech division. New Frontier Data has traditionally been known for its macroeconomic and microeconomic opportunity and risk assessment from a financial perspective, right? So we've had a strong fintech division, for lack of a better term, because we are a technology company, but we've had that.
That's been our core value prop or offering for years. In September of last year, we launched our adtech division. And what that division does is builds upon 160 million cannabis consumers to whom we have access. We're actually the only company in the world who has been collecting information — and obviously nothing personally identifiable — but we're the only company that has been collecting information on the cannabis consumer behavior. We've layered on top of that all of the contextual market understanding to help ad agencies serving this brand, and this mainstream entrance in food and beverage and health and beauty, engage and serve this cannabis consumer. So I would say that's the most significant change that we've had in the recent past.
Don MacPherson:
Any other significant trends that have emerged that you wanted to discuss?
Giadha A. DeCarcer:
One thing that we have been taking a very close look at, I don't know if you remember, and actually, I don't know if we discussed this back in 2019, but when we started the company, yeah, 2014, we spent three, four years, and we always got this question, "What is the size of the illicit market? What is the size of the illicit market?" For the longest time, our answer was, "We don't know. Nobody knows. It's very difficult to quantify."
Around 2019, we had come up with our first figure, and we have since really put a lot of effort in tracking and understanding the impact of legalization to the illicit market. Today we now have enough information to be able to say there's a correlation between expanding legalization and the erosion of the illicit market. So as we see states legalizing, we see the size of the illicit consumption going down.
In 2019, there were over $60 billion in illicit cannabis sales, we're talking beyond North America, with $18 billion in legal sales. We expect those numbers by 2025 to be $58 billion and $42 billion, respectively. So less than $60 billion in the illicit market and over $40 billion in the legal market. Thus seeing the shrinking of that delta between the two, and I think that's an important trend. So to say it in other words: In 2020, there was about an estimated 24% of U.S. cannabis sales that we believe were legal. In 2025, 42% of total annual sales are expected to be legal.
Don MacPherson:
Well, love the conversation, and so grateful you had time all the way from Italy to join us. Giadha, thank you for your time, and thank you again for being a genius.
Giadha A. DeCarcer:
Thank you, Don, for all your questions. Look forward to talking more soon.
Don MacPherson:
Thanks for listening to 12 Geniuses. During next week's interview, we're going to check in with my friend and longtime mentor, Doug Lennick. Doug joined us in Season One to discuss the importance of emotional competence and how financial stability is one of the keys to managing personal well-being. We'll get into these topics and more when Doug's episode is released Aug. 31, 2021. Thanks for listening, and thank you for being a genius.