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Commentary & Analysis

Cannabis Packaging Market to Triple in Three Years According to Smithers

The second in a series of articles about the current cannabis landscape, and the potential opportunities in cannabis product packaging. Market research from Smithers—The Future of Cannabis Packaging to 2024—forecasts that as this market evolves, the value of the packaging for legal cannabis products will rise from $493 million to exceed $1.63 billion in 2024.

By Smithers
Published: March 18, 2020

(There is still time to register for “The Cannabis Gold Rush” LunchNLearn webinar, to be held Wednesday, March 18, at 1 pm ET.)

The legal cannabis market is presenting an exciting growth opportunity for the packaging industry. A new Smithers study dedicated to this emerging segment shows that the value of the legal cannabis market globally will more than double from $21 billion in 2019 to reach $55 billion in 2024.

Exclusive market research from Smithers—The Future of Cannabis Packaging to 2024—forecasts that as this market evolves, the value of the packaging for legal cannabis products will rise from $493 million to exceed $1.63 billion in 2024. This is equivalent to a year-on-year growth rate of around 24%, well in excess of other more established consumer goods.

Packaging for cannabis presents some unique challenges however,  both due to the nature of the product  itself, and the nascent industry that is only now establishing itself for  legalized supply. For packaging  converters and suppliers that can  adapt their products to this industry it presents strong potential for premium packaging formats, which will reward the development of value-adding packaging concepts.

Medical and Recreational

The medicinal potential of cannabis and derived products—notably CBD oil—has led to its legalization in some form in many countries, including 46 out of 50 US states. These can largely be accommodated in standard pharmaceutical packaging formats and distributed via clinics and pharmacies like other therapeutic drugs.

The biggest long-term potential comes from exploiting those markets where legal recreational use is also permitted. In the US, those 10 states that have legalized recreational use now account for over 90% of cannabis packaging sales.

The widespread illicit use of marijuana already testifies to its future popularity. There will be new opportunities for cannabis brands, with branded packaging including safety and stay-fresh features to help convert this into a recognizable fast moving consumer goods (FMCG) segment. As this happens packaging companies and technology have a key role to play to ensure consistency of product and build brand loyalty among users.

Legal Status

Although it has long been used illicitly, future geographic growth of cannabis as a segment for the packaging industry is fundamentally driven by when and where its trade is legal. While many countries and some US states have adopted liberal enforcement policies this does not equate to a market opportunity for regulated branded packaging.

The decision of state legislatures in the US to legalize cannabis use is making it the dominant world market for cannabis packaging both in 2019 and into the future—it represented 63% of the world market in 2019.

The Trudeau administration’s decision to legalize cannabis in Canada—the first G8 nation to do so—is creating another large consumer market moving forward. This combined with potential legalization of recreational use in Mexico will only help reinforce the dominance of the North American region; creating scope for synergies and dedicated business units based in the US. By 2024, North America will account for more than 80% of the world cannabis packaging market by value.

Beyond North America, recreational use is limited to a few specific markets, notably the Netherlands (Europe), Paraguay (South America), Australia and to a lesser extent Israel. These can represent lucrative niche markets, but have little potential as high-volume market for packaging suppliers.

Material Markets

Traditionally plastic bags and films have been used to package cannabis in the underground market.

As it enters the legal regulated market, new requirements are being placed on cannabis products, including the use of child-resistant fixtures, and complex labeling requirements. This is favoring wider use of rigid plastic “pop top” containers typically made from injection-molded and pigmented polypropylene copolymers. These are relatively cheap but require a lot of hand labor to fill, weigh, and apply the labels required by law.

Paperboard packaging is proving popular with cannabis users, due to its environmental friendly persona, printability and recyclability. Its difficulty to making a child resistant primary package from paperboard however, limiting its use to overpackaging.

More modern flexible plastic formats are also taking a share of this segment, and there are some child-resistant fixtures that could be adapted to cannabis packs.

Metal and glass also have significant shares in the market this is mostly due to their barrier properties that allow preservation of cannabis over a longer period.

Industry Structure

Legal cannabis is a nascent industry, and one without established supply chains for packaging. In the US, many states start off with a vertically integrated supply system, immediately after legalization. As the market matures, supply chains where companies specialize in one stage in the supply chain will develop. For packaging suppliers, it is important to identify and cooperate with companies at this phase, and or develop their own service lines that can fill this area.

A big expense and limit to expansion of the cannabis market in 2019 is the need to automate packaging. Currently, most packaging is done by hand, but many larger operations are buying machines for weighing, filling, and sealing. Contract packaging and equipment leasing are opportunities for small manufacturers to scale up operations, automate and enjoy lower costs with higher quality. 

Brand Identity

Recreational cannabis is now seeing the emergence of its first brand name sellers—as a market where brand substitution is relatively easy, there is a clear onus to develop a clear identity. As with other FMCGs, packaging can play a central role in communicating brand values.

For medicinal brands, the main objective is to make the product look like a genuine pharmaceutical. For recreational use, several brands have targeted immediate name recognition through association with famous cannabis smokers—this includes Marley Natural (Bob Marley) and Willie’s Reserve (Willie Nelson). Others are investing in packaging formats and designs more commonly seen in the luxury segment—such as Canada’s Doja brand and California’s THC Design.

Seed-to-Sale

There is also an emergent demand for intelligent packaging solutions. In this segment this is generally understood as a “seed-to-sale” concept enabling track-and-trace across the distribution chain to validate quality in supply, and prevent counterfeiting. Illegal sellers have already adapted to the new market conditions and have produced fake packaging to pass off their goods as those from legal cannabis brands that have started to gain name-recognition.

Security print company De La Rue is now supplying brand protection labels to the KushCo. In December another brand Akerna announced an $18 million investment in an anti-counterfeiting platform from Solo Science.

Both of these rely on unique device identifier (UDI) codes that can be validated and tracked at each stage of distribution, including by the customer on a smart phone. Interestingly at this final stage the same technology can be leveraged to open a marketing channel to the consumer. Offering simple one-click product renewals, discount promotions, or recommending new cannabis products based on his or her previous purchasing history.

US Market

The largest market for cannabis packaging lies in those US states that have approved recreational use.

The lead role US states have taken in legalizing cannabis means that in 2019 the US accounted for two thirds of the world market—with a value of $388 million. This geological concentration will increase as Canada and potentially Mexico follow the US lead; this will see market value for North America more than triple on three years.

Different types of cannabis—flower products (resins or pre-rolled joints for smoking), concentrates (products created by refining cannabis flowers, such as hash, dry sieve, and hash oils), and edibles (cookies, brownies, candies, etc.)—use different types of packaging.

In North America, the most widely used packing are rigid plastics and paperboard formats. Both have a market share of around $75 million in 2019. Rigid plastics are especially popular for cannabis flower products, while paperboard is used in smaller volumes across concentrates and edible cannabis products. Flexible plastics are used for some cannabis flower products and are the preferred material for edibles, where there are clear parallels with existing food and snack goods. For the latter application, flexibles represent around 43% of the market in 2019. 

As the market for legal cannabis evolves, how end-users consume it will change. This will be a major trend for the packaging industry in this segment. Just as modern consumers increasingly prefer vaping products for nicotine products, so these healthier more user-friendly devices will become more accepted for cannabis delivery.

By 2024 cannabis concentrates in vape cartridges will be the most common format for legal cannabis sales. Sales of flower products for smoking will decline, reducing the overall market share for rigid plastics. This will create an onus for more regulation of vape cartridges, especially following the popcorn lung health scare associated with cannabis vapes in H2 2019.

The future market for legal cannabis packaging is explored and quantified in detail in the new Smithers report The Future of Cannabis Packaging to 2024. This report is available to purchase now.

 

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