It’s no wonder legal cannabis products are poised to become the largest growing new consumer packaged goods (CPG) segment in the U.S. Major changes to the business landscape are coming as a result ... and many have already begun. Here are six things that will change in the CPG industry as a result.
1) The Substitution Effect
Cannabis is a formidable competitor for packaged goods like alcohol, nicotine, and pain relievers. Nielsen reports that 41% of American adults trying to quit smoking would consider using cannabis for smoking cessation. And, one out of every five beer drinkers indicated they would spend less on beer due to cannabis consumption.
The pharmaceutical industry will also be heavily impacted, especially traditional OTC pain relief products. In fact, of those consumers who use OTC pain relief medication, 35% would consider using cannabis to treat their pain instead. There is a growing movement to help minimize the opioid crisis by replacing addictive drugs with medical cannabis products. In August 2019, Colorado became the third state allowing doctors to recommend medical marijuana for any condition for which they would prescribe an opioid.
If manufacturers of substitutable products are not prepared to diversify, they will be at risk for major losses. Forward-thinking companies already are seeing the opportunity to add to their revenue streams with cannabis-infused or cannabis-adjacent products.
2) The Race to Automate
When cannabis products were illegal, packaging was done in small quantities by hand. Early on, legalization created new supply chains and markets, but cannabis companies still largely packaged their products manually. Now, the legal cannabis industry is growing at a rapid pace and the only way to keep up is automation.
We are now entering a new age of cannabis packaging, led by companies that realize they will not be able to compete and keep up with demand if they don’t invest in cannabis packaging machinery. Additionally, cannabis companies are consolidating, creating huge corporate structures that necessitate advanced packaging techniques.
As legalization spreads, packaging regulations arrive with it — the main issues being proper labeling, child-resistant closures and tight weight tolerances. Packaging equipment can easily meet legal requirements with ease, speed, repeatability, and high accuracy, making it even more attractive to growing cannabis companies.
Anecdotally, interest in cannabis packaging machines at Viking Masek increased by almost 110% from 2017 to 2019. The company sold more cannabis packaging systems in 2019 than ever before, and it expects demand to keep increasing.
3) A Boon for Packaged Snacks
Corn chips. Cookies. Puffed cheese snacks. All foods typically loved by those that experience “the munchies.” Increased appetite as a side effect of THC consumption has historically been played for laughs, but after increased legalization, it has become a legitimate driving market force.
“Nielsen data shows that growth rates for both candy and snacks are rising faster in [areas where cannabis is legal] than in geographies where cannabis has yet to be legalized for recreational use.” — Prepared Foods
Additionally, demand for cannabis and CBD-infused edible snack products is increasing. “Eating your cannabis” is seen as safer and more discrete than smoking, and so appeals to parents, grandparents and young professionals who may be hesitant to use it otherwise.
Whether consumers snack on their cannabis or because of their cannabis, demand for packaged snack foods is expected to rise as legalization continues.
4) The Rise of Cannabis Contract Packagers
Contract packagers offer packaging services for hire. If a business finds that it does not have the internal capabilities, expertise, or resources to package its product in-house, contracting with a packaging company is a popular and cost-effective option.
In August 2017, Marijuana Business Magazine estimated that there were only a handful of contract packagers that would handle cannabis products. Today, many “larger cannabis industry players [are] acquiring enough capacity and expertise to offer contracting services,” according to PMMI’s 2020 Cannabis Market Report. Contract packagers of cannabis edibles may become as indispensable to their industry as co-packers are to the CPG industry at large.
While contract packagers for cannabis products aren’t necessarily widespread, there are companies providing specialty packaging services for flower and concentrates. More recently, co-packers are offering services to package products like cannabis edibles and teas.
PMMI believes this is an area to watch,
and one with opportunity. Contract packagers of cannabis edibles may become as indispensable to their industry as
co-packers are to the CPG industry at large.
5) Cannabis Packaging Grows Up (and gets flexible)
Long gone are the days of the clear plastic baggie you can hide in your pants pocket. Since being legitimized as a legal product in many areas, cannabis packaging has undergone a serious makeover.
Today’s legal cannabis consumer demands a sophisticated product with premium, safe packaging that’s impressive enough to share with their social media followers. Cannabis edibles are especially leading the way, transitioning to flexible stand-up pouches for a specialty, small-batch look and convenience. Easily fitted with a child-resistant closure, stand-up pouches combine looks, practicality, and safety into a total package.
6) CBD Everything
After the passing of the 2018 Farm Bill in the U.S., hemp and hemp products are no longer considered an illegal substance at the federal level. With that, a hemp product called cannabidiol, or CBD, also became legal. The FDA is still carefully regulating hemp and CBD, but overall companies that produce these types of products that have been given the federal go-ahead to pursue their business goals more aggressively and there are doing just that. In the United States alone, CBD products in all channels projected to reach about $20 billion by 2024. CBD products are showing up in almost every consumer packaged goods segment. Some experts predict that CBD may eventually become a new “background product” in many consumer packaged goods, similar to caffeine.