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Please note this is part of our Monthly Playbook. If you would like to read the entire Monthly Playbook you can sign up here

What Is The Real Cost Of Converting Your CBD To Delta-8- THC?

Often derivative products are taken at face value when being compared. Currently, this is the case when we speak with operators about CBD and Delta-8 THC. The decision-making process always centers around comparing the price of 1 kg of CBD isolate (~$533.00 / kg) to the price of 1 kg of CBG isolate (~$1,150.00 / kg), which at the surface shows the potential to double the gross revenue.

Once you dive into the hard costs of converting your CBD inventory to Delta-8, the story changes dramatically. Below, we go through a calculation that takes into consideration a variety of variables when calculating the costs of converting CBD. The fixed costs in this calculation are based on conversations we had with an R&D research chemist working at a licensed facility in Colorado.

What Is The Real Cost Of Converting Your CBD To Delta-8?

What Is The Real Cost Of Converting Your CBD To Delta-8?

Based on our calculations, there’s still room for Delta-8’s price per kilogram to drop before the conversion becomes unprofitable. Our model suggests that, on this scale, the breakeven price per kilogram is around ~$923.00. Based on our forecast published in last month’s report, this could happen as early as May of this year. We advise our clients not to keep large inventories of Delta-8 in house due to the current Delta-8 pricing volatility.

Input Categories Assumptions
CBD quantity (kg) 10
Market value of CBD isolate $ 533.00
Total cost of CBD $ 5,330.00
Solvent quantity (Liters) 15
Total estimated solvent cost $ 1,400.00
Catalyst quantity (grams) 50
Total estimated catalyst cost $ 50.00
Total estimated labor cost* $ 500.00
Total analytical testing cost   (QA / QC) $ 300.00

NoteS:
*Labor cost is estimated based on 20 hours
of labor @ $25.00/hr
**Conversion yield is calculated after conversion,
work up, and purification to final product.

OUTPUT Categories Assumptions
Conversion yield* 85%
Delta-8 THC quantity (kg) 8.5
Market value of Delta-8 THC /   kg $1,150.00
Potential Revenue
Estimated Profit
$ 9,775.00
$ 2,195.00

Total Input Cost = ( Cost of CBD + Cost of Solvent + Cost of Catalyst + Labor + Analytical Testing )
Potential Revenue=( (Percent Yield from Reaction * Input Quantity of CBD) * Delta-8 Market Value )
Estimated Profit = Revenue – Input Cost

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In March of 2021, the United States Department of Agriculture (USDA) granted Oregon State University ~$300,000 to fund studies focusing on hemp byproducts as a source of cattle feed.4 There are several driving forces behind this connection, including allowing hemp to be grown on cattle farms, maximizing the nutritional value of livestock feed, and providing a use for the extracted hemp biomass that is currently going to waste. At present, the cattle feed market is valued at $76.9 billion with a compound annual growth rate of 3.2%.

Cattle Feed Market Size

Cattle Feed Market Size

One percent of the total global cattle feed market equates to ~$769 million, and if hemp captured that market share, it would boost the CBD hemp industry’s annual revenue by more than a 29%. Approximately 130,000 acres were planted last year, and assuming that there are 165 pounds of hemp per acre, that represents ~21,450,000 lbs. or 10,725 tons of CBD hemp..6 The North American region alone consumed 27.7 million tons of beef cattle feed.7 Turn a waste product into an opportunity.

By adding revenue through a waste stream, you’re creating a sustainable, mutually beneficial relationship.

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Analysis of the Cannabis Pre-Roll Market

Pre-Roll Market Size

PRE-ROLL MARKET SIZE

Additional data from Headset* provides more insight into the current state of the industry. It’s clear that certain factors associated with differences in sales volume between states can and should be examined.

The above chart outlines the correlation between average price per unit and overall market sales data. Based on this chart, there does not seem to be a correlation between annual pre-roll sales and unit price. When viewing the results of the correlation, there does not seem to be a direct relation between annual pre-roll sales and unit price. California and Massachusetts, where the unit price is the highest out of any states, also boast the first and third largest markets by sales, respectively. Washington on the other hand has the second largest pre-roll market and has the lowest average price per pre-roll unit.

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Synthetic Cannabinoids Manufacturers?

This month, we want to touch on a topic that’s been circling the news quite a bit; how yeast may become the method in which cannabinoids are produced. You probably saw the headline “Vancouver biotech company produces CBG from yeast”, but this isn’t the first company to have successfully produced cannabinoids using a micro-organism such as yeast.10 Chronos Group, as well as several other companies like InMed Pharmaceuticals and CBYeast, have been working on successfully commercializing this technology for quite some time.

A Gmo Feast For Cannabinoid Yeast

The way the technology works is by providing sugar to yeast, and like brewing beer, the yeast uses the sugar to create the target cannabinoid. The difference between this technology and brewing beer is that, in this case, the yeast has been genetically engineered to create a specific cannabinoid. This is done by providing the yeast with a “blueprint”, or genetic code, of the cannabis plant enzymes that are needed to create the target cannabinoid. Even if this technology is successfully commercialized, it will be interesting to see how the consumer market reacts to a “GMO” cannabinoid and if it can economically compete with the traditional production methods.

The main area we believe this technology will be valuable to be the pharmaceutical sector, as it could be easier to obtain a minor cannabinoid such as CBC or CBN through synthetic methods rather than standard agricultural practices. Only time will tell how disruptive this technology will be in space. The important part to remember with synthetic cannabinoids manufacturers is working with a synthetic cannabinoid expert.

As always, please reach out if you have any feedback or there are specific topics you would like us to elaborate on in the future.

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Join the 1,512 others who are receiving high-signal, data-driven analysis to be in front of their peers in the cannabinoid space! If you have found value in our insights please share this with another canna-curious individual to grow the revolution!

Each month we spend hours analyzing market research, data trends and private conservations to will keep you in front of the ever-evolving cannabinoid industry. Read the entire July Report here

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Forecasting Cannabis Basket size by Sales and GDP of States

 

While the legal cannabis landscape continues to expand into new state markets, there are several factors influencing executive teams when analyzing these strategic growth opportunities.

 

Nominal GDP AT CURRENT PRICES 2020 // MAY CANNABIS SALES // 2021 Population BY STATE

Over the past six months, several states have turned into hot markets for MSOs looking to expand. To understand the factors that influence market opportunity and visualize their correlation, we crossanalyzed population, nominal GDP, average basket size in existing markets, and May’s cannabis sales data. California, for example, contains more than 50% of the American adult population eligible to purchase cannabis, in addition to over 54% of the total nominal GDP amongst the 7 adult-use markets evaluated.7,8 This state, however, only accounts for 36% of the total monthly cannabis sales, demonstrating that the population and GDP may not serve as a direct correlation when understanding a state’s market opportunity.9

When you consider the average basket size in each of the states, a clearer picture emerges. In California, the average basket size is only $67.42, whereas in Michigan, the average basket size is $84.09.9 When comparing these stark differences, it is clear that the state’s population doesn’t play as much of a role as the amount each customer spends per trip and number of adults in the state consuming cannabis.

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Join the 1,512 others who are receiving high-signal, data-driven analysis to be in front of their peers in the cannabinoid space! If you have found value in our insights please share this with another canna-curious individual to grow the revolution!

Each month we spend hours analyzing market research, data trends and private conservations to will keep you in front of the ever-evolving cannabinoid industry. Read the entire June Report here

One Report, Once a Month, Everything you need to know

The article below is an excerpt from the Monthly Playbook.

The Future Of Lumber And Its Effect On Cannabis Consumers – June 2021 Monthly Playbook

At the time of writing this, July 2021 lumber futures are trading at $1540 per contract, which is a 337.5% increase in price from last year. The interesting thing about lumber future contracts is that they include both the finished lumber products, like as 2’ x 4’s for framing houses, along with pulp which is a byproduct of the milling process. The pulp is used to create paper, cardboard, corrugated cardboard, and other consumables. While the housing boom requires finished boards and is driving the price of lumber future contracts up, the pulp industry operates differently.

Typically, only half of the fiber used for paper manufacturing processes is derived sawmill pulp, and the other half comes directly from wood that was purposely harvested for paper. 5,6, The glut of pine trees in the United States is escalating the stock price, helping cushion sawmill margins.

The Future Of Lumber And Its Effect On Cannabis Consumers

The cannabis industry is heavily reliant on paper products to package and label goods. The main product we believe could be the most effected by the increase in lumber and pulp prices is the pre-roll market. The total domestic market for pre-rolls in 2020 was ~$1.9 billion with ~200 million joints sold in the adult-use markets.

The average retail price is currently around $10.00 for a 0.7 gram cannabis pre-roll.7 If processors experience a 300% increase in packaging cost for pre-rolls (including the rolling paper, filter, packaging, and label), the consumer will most likely have to foot the bill. This spike in pulp pricing will inevitably lead to an increase in price for paper products. Considering the uptick in online shopping this year leading to increased demand for cardboard, we recommend locking in packaging inventory for the summer to avoid any dramatic price increases.

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