Arcview Market Research CEO Troy Dayton on the $56 Billion Cannabis Industry

Arcview Market Research CEO Troy Dayton heads up North America’s leading cannabis industry market consultancy, boasting an investor network of over 600 accredited investors. They are the publishers of the The State of Legal Marijuana Markets, which recently said that the combined legal and non-legal North American Cannabis markets saw US$56 billion in transactions during 2016.

Listen to the podcast interview with Troy Dayton:



James West:    Troy, thank you for joining us today.

Troy Dayton:   My pleasure, thanks for having me.

James West:    Troy, tell us about Arcview and what is your expertise in the cannabis industry?

Troy Dayton:   Yes, so the Arcview Group, we’ve been around since 2010 and we help investors and entrepreneurs navigate the fastest growing industry in America, and now probably, the world. So we do a couple of things: probably most well-known for Arcview market research, where we’ve been putting out market data and market projections and trend analysis for many years. We just released our fifth edition of the state of legal marijuana markets, which takes a look at the growth trajectory and investment trends.

And then we also have the Arcview investor network, which is a consortium of about 650 high net worth investors who have placed more than $103 million now behind about 137 companies in the cannabis sector. And we’re also partners in the C stage mentor driven accelerator called Canopy, as well as partners in Cannasure, which is an insurance company for the cannabis industry.

James West:    Okay. Is the Canopy that you refer to, the Canopy Growth Corp. that’s in Canada, our largest producer?

Troy Dayton:   No. No. No. Canopy is a seed-stage mentor driven business accelerator very similar to the Techstars or 500 Startups or Y Combinator, and we’ve made 45 investments into really early, pre-seed-stage companies and put them through a four month program where we help them fill in the gaps in their businesses, help them get connected to the right people in the industry, and some of the best companies in the sector have come through of that program.

James West:    Okay. So you recently reported a $56 billion was spent in the cannabis industry, North America-wide. Can you give us a description, a breakdown, an overview of what that $56 billion is representative of?

Troy Dayton:   Yeah, that represents all of the money that’s spent on the licit and illicit market in cannabis in North America, and what we’re noticing is that about 6.9 billion of that is spent in the legal market, and that when places change their laws and bring regulated cannabis, that the market shifts from the illicit market to the licit market. So when you think about the growth of the marketplace, usually you’re not just transitioning from one marketplace to another, so the demand is just tremendous for cannabis, and as we move to a regulated legal market, we can expect most of that market to transition into the legal channels.

James West:    Uh-huh. I see. So if 6.9 billion spent in the legal channel has come as part of that 56 billion North America-wide, so does that mean that – just for clarity, I’m pretty sure you already answered that, but I’m not sure I got it. so is the total 56 billion that we can expect, say, next year, is more of that going to come from the legal side as states transition, or is the legal side in addition to that existing illicit demand?

Troy Dayton:   Sorry, ask the question again? I’m not sure I follow.

James West:    So the total market size is 56 billion in 2016. 6.9 billion came from the legal side. When 2017 passes, there will have been a greater number of states selling legal recreational marijuana; is that going to add to the 56 billion, or will that just be part of the 56 billion that comes from the illegal side over to the legal side?

Troy Dayton:   Yeah, I think we’re going to continue to see a shift from, as more states have legal channels, we’re going to see a shift going from the illicit side over to the licit side. And there’s some increase in the total market that happens because of new people who are interested in different forms, or people who weren’t using cannabis because it was illegal, or you know, medical patients who are discovering this is a new way to treat without having to use the more serious medications and whatnot. So it’s not an exact transition, but certainly, we’re going to see that.

But also keep in mind that most of the places that passed this law in 2016 are not going to have particulars of both markets in 2017; there’s always a lag time because of how long it takes to implement the regulations, and to get a robust and maturing market takes a few years.

James West:    Okay. So I’ve seen predictions in the media suggesting cannabis is going to be worth 21 billion by 2020; you’ve got a different time frame on that?

Troy Dayton:   Oh yeah. Well, we predicted that the North American legal market for cannabis will be about 21 billion by 2021.

James West:    Okay. So do you see problems or opportunities ahead for Canada’s producers in the US in light of the new administration, in particular in light of Jeff Sessions’ nomination to the role of Attorney General?

Troy Dayton:   It’s really hard to say. I think that there’s a very, very good chance that the cannabis industry will be left alone. Donald Trump was 100 percent consistent on the campaign trail on this issue, that he thought this was a states’ rights issue, and in fact he even spoke positively about medical marijuana directly, saying how he knew a lot of people that it helped. And so, and then with Jeff Sessions, he’s been our probably biggest opponent in the Senate, and yet his rhetoric was radically different when he was in his confirmation hearings, and then subsequently as he responded to some written questions about this very topic. And so it’s our hope that, it’s pretty clear the he got the message from the Trump administration.

Now of course he has not come out and said specifically “No, I’m going to leave it up to the states” but I think that the protection here is that this is a hugely popular issue, and not just a hugely popular issue generally, but a hugely popular issue among Trump voters. You’ve got to remember that this won handily in red states like Florida and Arkansas and North Dakota and Montana in 2016. And so it’s also an industry that has a lot of jobs, and Trump is really trumpeting himself as a jobs President.

So I just can’t imagine that it would make good political sense. I just don’t see a good political calculus from their perspective on how going after the cannabis industry makes any good political sense. That being said, we are in a completely different world now when it comes to political sense, and so you know, there’s always a possibility that somebody will do something stupid.

James West:    Right. Right.

Troy Dayton:   So we’ll see how it pans out, but I think long-term, I think we’re in a very, very good position. This is a very strong issue, very strong political support, and it’s tax money and jobs.

James West:    Right. Do you think that there’s a risk that the level of taxation might catalyze black market viability going forward, whereas we might actually end up with a parallel market if they try to tax it too heavily?

Troy Dayton:   Sure. Absolutely, I think that is something that every state is going to have to manage. They want the taxes to be high enough that it’s a big boon to their state coffers, but if you make it too high then it makes it hard for the licit market to compete with the illicit market. And so I think, you know, you’ve seen a couple of other states have to go through that dance to find the right tax levels, and I think we’ll continue to see that. And I think states will get better and better at that as it goes. And I also think there’s a lot of other ways beyond just pricing and tax dollars that will help the licit market compete with the illicit market, and that is the development of new types of products, the ease of being able to go to a store, and these sorts of things, I think, are going to also help that transition happen.

But for the most part, at the end of the day it needs to be cheaper to get at a store than it would be to go to a drug dealer.

James West:    Right, okay. So do you think that there’s a risk of the commoditization effect, that could result from a national sort of explosion of large-scale automated growing that could minimize the margins that are possible and take them down to such razor-thin levels that only massive producers will survive?

Troy Dayton:   Well, it really depends on the market and how the regulatory regime is set up in that market. In markets where there’s sort of unlimited licensing, or really, really broad licensing where you have hundreds of dispensaries and hundreds of cultivators and hundreds of producers and processors, yes, I do think there will be incredible price compression, and I think ultimately that’s going to be great for consumers, and ultimately it just means that there’s going to be a lot of shifts happening in the marketplace that are going to make some interesting shifts into where the values are in the marketplace, and where the places are to place money and where’s going to be the best businesses to be in.

That being said, most states have not taken that approach; neither has Canada. They’ve been taking a very limited licensing approach, and with a limited licensing approach, for better or worse, it does kind of artificially keep the prices and the margins pretty protected and inflated. Which isn’t so great for consumers, but is great if you’re one of the limited licenses.

James West:    Mmm, yeah. All right. So do you think that the advent of high-potency concentrates represents a risk to cannabis users and the public?

Troy Dayton:   What do you mean by that?

James West:    Well, for example, various types of dabs, shatter, you can smoke THC concentrated to above 70 percent now; that has a completely different set of psychotropic implications for the human body, and it has different levels of effects on younger people especially who have reactions physiologically that constitute permanent damage in some cases; at least, that is what preliminary research is suggesting. And I’m just wondering, from where I sit, is this advent of an unbridled concentration, it’s like suddenly all the liquor in the liquor stores is 151-proof and everybody’s drinking 151. Some people can handle it, but the vast majority of people can’t, and it is a risk in the case of liquor. So I’m wondering if that’s going to translate into a risk in the recreational space for the general public? If people are walking around smoking marijuana products that has been concentrated to a level that is far more than they can physiologically tolerate, does that make them a risk to society in general? And does that situation perhaps cause a general risk from the entire recreational cannabis evolution?

Troy Dayton:   Yeah, well, I mean I’m not a doctor, I’m also not a medical researcher or a sociologist that would look at this, but so it’s not my area of expertise. That being said, my experience and my understanding of part of what makes cannabis such a safer alternative as opposed to alcohol is that it’s very self-limiting, which is that if you take too much, you stop. And people can tell when they’ve had too much, and they can tell because there’s such an immediate effect. If one was too much, take half as much stuff next time, or something like that.

So I think that unlike alcohol, where if you drink too much alcohol, it affects your ability to make good decisions, and it has a way of convincing people that they’re invincible or that they could have more, or whatever, I don’t think the same – I think the opposite with cannabis. I think people are more likely to feel more impaired and to be more cautious with cannabis. So I think the self-limiting aspect of it is something that’s going to be an asset from a public health standpoint, rather than a risk. It’s certainly not a completely harmless drug; I think people need to be educated and careful, just like we have with alcohol where people understand that a beer is different than a shot of 151.

So I think as there’s more public education about the differences, that people can make educated choices about their consumption.

James West:    Okay. And finally, how does the general public or interested parties access your work and your research?

Troy Dayton:   Yes, so you can you go; there’s a really in-depth, free, executive summary of our market report that you can download; really interesting data in there. We just partnered with BDS Analytics on a lot of the data that we’re using, and that’s based on their really in-depth point of sale data that they’ve been collecting, so it’s great. So I highly encourage people to do that.

You really want to go further into that, I highly recommend purchasing the actual report, which will be out in just a few weeks, which is over 200 pages in both digital and in hard copy. And then if you are a high net worth accredited investor looking to place $100,000 or more into this sector, we’d love to have you as part of the Arcview investor network, where we look at about three or four companies every week as a group, and we’d love to have you involved in that. Our next big event is going to be in Barcelona March 7th through 9th, and then we’re going to be in Austin, Texas, May 1st through 3rd.

And then if you are representing a company that is raising capital in this space, we’d love to hear from you as well, given that we’re the top source of fuel flow in the industry.

James West:    Sure. All right, Troy, that’s very informative. That’s a great introductory interview; we’ll come back to you in due course and see how you’ve evolved. Thank you very much for your time today.

Troy Dayton:   Thanks for having me.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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