The third and final part of Jim’s series on precision fermentation and the cannabis sector.
Jim Plamondon
Cannabinoids made by precision fermentation pose an existential threat to much of the cannabis farming & processing industry.
By Jim Plamondon
Introduction
Genetically modified microbes are being fermented in breweries, today, to produce cannabinoids. The combination of genetic engineering and fermentation is called “Precision Fermentation” (PF). The resulting Precision-Fermented Cannabinoids (PFCs) can be sold as isolates, blended with terpenes and flavonoids into pseudo-extracts, and soaked into cheap hempseed flower biomass to make pseudo-marijuana flower. These PFC-based products are likely to satisfy those who want to treat their medical conditions (or get high) inexpensively—that is, everyone except connoisseurs.
Therefore, PFCs will disrupt much of the cannabis farming and processing industry over the next dozen years, give or take. This is an absolute certainty. The only question is: how much of your corner of the industry will be lost to PFCs?
This article is the third in a three-part series that attempts to answer that question:
The first article discussed how PFCs would, over the next several years, satisfy most of the demand for isolated cannabinoids.
The second article, PFCs: Disrupting Cannabis Extracts, described how “neo-Gelato blends”—blends of PFCs, terpenes, flavonoids, etc. that imitated an extract of Gelato flowers—would satisfy much of the projected demand for extracts of farmed Gelato, as both an ingredient and as vape oil. Gelato was chosen as the archetype because it is a popular and delicious strain; if a blend can successfully imitate Gelato, then blending can imitate anything.
The previous article also defined the “deplorables” as all of the cannabis consumers who were not connoisseurs, and pointed out that daily consumers of cannabis—most of whom are among the deplorables—consume 80% of the cannabis products sold (by volume).
At the end of the Extracts article, you might have been thinking: “OK, maybe we’ll lose the isolate market to PFCs, and maybe we’ll lose most of the extract market to PFC blends…but we’ll still have the flower market. Neo-Gelato blends can’t compete with Gelato flower.”
If you thought that, you were wrong. Here’s why.
Neo-Gelato pre-rolls
Take some neo-Gelato blend and imbue it into a smokable substrate—perhaps cheap dried hemp flower seedhead biomass, left over from hempseed production. Grind it up, wrap it in RAW™ organic hemp papers (to signal ‘quality’), and sell it in a pack of 20 “100% Natural Neo-Gelato Cannabis Flower” pre-rolls, the same size and shape as a tobacco cigarette. Their “100% Natural” infused flower might not have frosty, tight, manicured nugs, but that’s OK because the bud would be ground up anyway, and no one could see it through the rolling paper. Nor could it be seen in the pre-made flower vaping pods used in CannaKorp’s Wisp (the “Keurig of Cannabis”), or in new vape pens designed to vape a segment of a neo-Gelato pre-roll.
Will cheap neo-Gelato pre-rolls sell in high-enough volume to threaten the cannabis flower market? Of course they will, because of price, convenience, the industry’s embrace of “infused” pre-rolls, and the industry’s bud-focused metrics. Let’s look at those factors one at a time.
Price
As Arthur L. Mayer said (paraphrasing H. L. Mencken), “No one ever went broke underestimating the taste of the American public.” The deplorables are much more sensitive to price that the connoisseurs are. One of the main reasons that consumers still buy black-market weed is because black-market weed is cheaper. Also, the exotic flavors that are enjoyed by many of the deplorables are easier to deliver by blending ingredients than by breeding these exotic terpenes and flavonoids into a new cannabis strain.
Cheap, delicious, potent neo-Gelato pre-rolls are almost certain to fly off retailers’ shelves, putting a serious dent on the sales of farmed Gelato flower (and the same for all other strains).
Convenience
Before 1880, most tobacco was sold loose—as most cannabis bud is sold today—not as pre-rolled cigarettes. However, soon after the cigarette-rolling machine was invented in that year, pre-rolled cigarettes became so cheap and convenient that they started dominating tobacco sales. Today, less than 2% of American smokers roll their own cigarettes exclusively, and only 7% roll their own occasionally. Pre-rolled cigarettes totally dominate tobacco sales in most nations.
The convenience of pre-rolls is a non-trivial time-saver—especially for the deplorables, who consume cannabis daily (often “all-daily”). Tobacco smokers abandoned the ritual of rolling their own in return for convenience; odds are good that cannabis smokers will, too.
Infused pre-rolls
Many makers of premium cannabis-flower pre-rolls infuse them with extracts to boost their potency and consistency. Examples include Flow Kana’s Caldera-branded pre-rolls, Perfect Blends’ Perfecto-branded pre-rolls, and Sublime’s Fuzzies-branded pre-rolls. These brands are educating consumers to prefer infused flower products to non-infused flower products. According to Scott Sundvor, the CEO of Space Coyote in California, “75% of the pre-roll market is infused now.” Some are infused with kief, some with distillate, some with wax, some with bubble hash, some with resin, some with rosin. Amid this plethora of infusions, pre-rolls infused with neo-Gelato blends will be indistinguishable, except by their bang for the buck.
Add just a touch of live rosin to the neo-Gelato blend, and voila! The neo-Gelato infused pre-roll can be marketed as a rosin-infused pre-roll, to be sold at a just-under-premium price, earning a fat margin to be shared with distributors, retailers, and budtenders to accelerate market share growth.
The one barrier that might have prevented neo-Gelato blends from invading the flower market—the fact that neo-Gelato pre-rolls have been “infused”—has been made a non-issue by the flower vendors themselves.
Bud-focused metrics
When the cannabis farming industry talks about measuring flower “quality”—for example, with the Ganjier system or with the earlier Trichome Assurance Grade system—it is talking about measuring signals of the effects to come, not the effects themselves. The frostiness of cannabis flowers, the tightness of their nugs, the perfection of their trim—these are just cannabis porn. The effects of ingesting cannabis are cannabis sex.
If farmed Gelato bud-in-jars offers expensive porn, while a neo-Gelato pre-roll offers cheap sex, then I expect the deplorables to buy cheap sex.
Gelato flower will lose material market share to neo-Gelato pre-rolls.
You may be thinking: “Even if the deplorables stop buying our isolates, our full-spectrum extracts (and therefore our trim and shake), and our middlin’-quality flower, we still have the craft bud market! Here in our warehouses, in our greenhouses, and outdoors in the Emerald Triangle, our farmers & processors will thrive by growing and marketing the world’s best bud!”
Craft flower
Yes, I whole-heartedly agree that there will always be demand for craft cannabis.
According to Ethan Russo, MD, Founder/CEO of CReDO Science and prolific author of cannabis-related scientific papers, “In an ideal world, cannabis could be selectively bred to express the exact proportions of cannabinoid and terpenoid components that are best suited to a particular therapeutic target. This is a tall order, however, and many alternatives are being approached in the industry, ranging from creating recipes of individual components, produced naturally from cannabis or other plants, synthetically from scratch in the lab, or from precision fermentation. My position remains that ‘Nature does it better.’ The best source is cannabis itself.”
But, where will that craft cannabis be farmed?
Imports
When medicinal cannabis becomes federally legal in the USA, craft cannabis may be imported from regions with lower costs and more-appropriate climates. The people of Thailand, Colombia, India, etc. have been growing great weed for centuries. They are likely to be able to grow Gelato that is better than the Gelato produced in North America, Europe, or Down Under. “Better” as in: more deliciously aromatic, with frostier buds, tighter nugs, a better trim, a more-consistent effect, etc. “Better” as defined by Ganjier and the Trichome Assurance Grade. “Better” as implied by Dr. Ethan Russo above. Just “better.” Think “hand-rolled Cuban cigars.”
Also, consider the collapse of farming sugar cane and pineapples in Hawaii, where the climate is ideal but the cost of production, on American soil, is just too high. Even Hawaii’s famous Kona coffee is so expensive to grow that it can legally be labelled as “Kona” even if is only 10% Hawaiian-grown and 90% foreign-grown. It is not hard to imagine “Emerald Triangle” bud being blended with 90% foreign-grown bud within several years after federal legalization for similar economic reasons.
I will save further discussion of the “threat of substitution by imported cannabis” for a later article, but the point is that PFCs are not the only “threat of substitution” facing cannabis farmers in the developed world’s temperate zone (which includes the USA, the UK, the EU, and Down Under).
The artisanal premium
There’s a ceiling on the price of the craft /artisanal version of a commodity product, and on its market share. This price ceiling varies from commodity to commodity. For example, craft beer sells for half-again the price of commodity beer (1.5:1), but captures only 14% of beer units (with commodity beer capturing 86% of beer units). The cost of making craft beer is much higher than the cost of making commodity beer, so there’s not much profit in the craft beer’s higher price.
Could the cannabis farming industry survive if its sales shrank to just 14% of current flower units sold (including sales in the illegal market), selling at a price that was just 50% more than neo-Gelato pre-rolls? I can’t see how, even if the cannabis industry could agree on a definition of craft cannabis.
In short, the economics of the craft beer industry are unlikely to rescue the cannabis farming industry.
Other artisanal products can command a higher ratio than craft beer’s 1.5:1. For example:
- Qantu – Oh la Vache! 60% Dark Milk (the International Chocolate Awards’ 2020-21 World Final winner in the milk chocolate category) sells online for US$10.99 for a 60g bar (18.3¢/g). A similar commodity chocolate bar costs $0.97 online for 44g (2.2¢/g). That’s an artisanal premium of (18.3/2.2=) 8:1.
- Dom Perignon Rose 2006 champagne is available online for $254, whereas a same-sized bottle of commodity sparkling rose is available online for $10.20 . That’s an artisanal premium of (254/10.20=) 25:1.
Let’s assume that pre-rolls of craft-farmed Gelato bud will have the same artisanal premium over neo-Gelato pre-rolls as Dom Perignon (25:1). Let’s also assume that a pack of neo-Gelato pre-rolls would retail for the same price as a pack of tobacco cigarettes (US$6.65 in the USA). A pack of craft-farmed Gelato pre-rolls, at a 25:1 artisanal premium, would retail for (25*6.65=) $166.25. At 12.5g of cured cannabis per pack, that implies that the retail price of craft cannabis would be (166.25/12.5=) $13.3/g. That is materially lower than the retail price of high-quality legal recreational Gelato bud in California today ($20/g). (If the farmed Gelato pre-rolls were made from shake, trim, and substandard bud to meet this price, then that would argue against their being of craft/artisanal quality. That would also argue that loose Gelato bud must command an even higher artisanal price-premium than Don Perignon, which is quite a stretch.)
Therefore: even if non-imported craft cannabis could achieve an artisanal premium as high as Dom Perignon’s (25:1), then the developed world’s cannabis farming industry may not be able to survive. Even if it could, then “survival” might mean keeping no more than 20% of the overall cannabis flower market (by volume), with the other 80% going to the neo-Gelato pre-rolls and imported flower.
Not enough connoisseurs
Even if the price of craft cannabis commanded the same 25:1 artisanal premium as Dom Perignon, then every cannabis bud farmer would be competing for the business of a relatively small number of connoisseurs. The resulting competition would tend to erode farmers’ margins, making even the craftiest cannabis farm a shaky business proposition. Restrictions on advertising would tend to weaken the market power of smaller craft farmers, even within the craft cannabis market.
Add competition from imported craft flower, and today’s cannabis farming & processing industry may become economically unsustainable in all but a few low-cost nations with ideal climates.
Let’s address a few miscellaneous points before wrapping this up.
Miscellaneous
Are neo-Gelato blends patentable?
“It would be possible to patent a specific blend of pure chemicals by establishing that the blend is novel, non-obvious, and useful, despite those same chemicals existing in similar ratios in natural cannabis plants,” said Dale C. Hunt, Founder & CEO at Breeder’s Best and Founder & Senior Attorney at Plant & Planet Law Firm. However, “a patent examiner would be very likely to cite prior cannabis plants and extracts in an obviousness rejection if the ratios are similar. Overcoming such a rejection could be difficult, depending on the facts.”
Are you infringing on the Gelato trademark?
No. According to Mr. Hunt, “The word ‘Gelato’ is trademarked in the US by a California company named APHAEA LLC for services relating to counseling and consultation on the cultivation of cannabis plants. The company also appears to claim other trademark rights for ‘Gelato’ relating to cannabis plants. Therefore, using ‘Gelato’ and/or ‘neo-Gelato’ as a trade name for a plant or a plant-related product could invite legal action for trademark infringement, depending on how it was used and on the scope of APAHEA’s actual rights in this mark.”
However, using ‘Gelato’ and/or ‘neo-Gelato’ in news or editorial (like this article) is allowed without permission, so long as the ownership of the trademark is clarified, which the above paragraph just did. So, no, I am not infringing on the ‘Gelato’ trademark in this series of articles.
This is all just your personal opinion, right, Jim?
No. Lots of analysts are starting to realize the potential of PFCs to disrupt the cannabis farming & processing industry. For example:
- The UN’s International Narcotics Control Board (INCB), which monitors international compliance with the UN Single Convention on Narcotic Drugs (which includes cannabis), stated in its 2020 Annual Report that “The method of cannabinoid production through genetically modified yeast makes the need for large ‘growhouses’ or clandestine cultivation of cannabis unnecessary.”
- RethinkX predicts that precision fermentation will disrupt dairy, livestock, and many other agricultural crops over the next 10-15 years, starting with the most-valuable molecules (such as cannabinoids).
- The Canadian investment advisory firm Raymond James wrote in a September 2020 report that “We have undertaken a probability-adjusted scenario analysis of the potential penetration of cannabinoid biosynthesis technology into the CPG and Pharma markets and, from this, we estimate the global market for products derived by cannabinoid biosynthesis growing from $10 [billion] in 2025 to $115 [billion] by 2040.”
- Ginkgo Bioworks, the global leader in precision fermentation, recently went public at a valuation of $15 billion. As mentioned previously, Gingko and its partner, the Cronos Group, have already begun producing commercial quantities of their first cannabinoid, cannabigerol (CBG), as have many other PFC companies. The disruption of cannabis farming & processing by PFCs has already started.
Conclusion
PFC-based products will soon be good enough to satisfy the much of the demand that is current satisfied by farmed cannabis, its extracts, and its isolates. How much of this demand will PFCs satisfy when markets mature in a dozen years, give or take? 80%, as suggested (for isolates) by Richard Rose? 90%, like cheese-making FPC? 99%, like vanilla? How much market share will farmed & processed cannabis retain in isolates, extracts, and flower? Where will the surviving cannabis farmers be located?
No one can know for sure, yet. The future is uncertain.
Call to Action
One thing is certain: the cannabis flower farming & processing industry faces an existential threat of substitution by PFCs right now. In response, the industry can:
- Continue to ignore the threat of substitution by PFCs, and lose massive market share to an army of determined, aggressive, and well-financed invaders that is already on its way, or it can
- Organize its defenses…and counter-attack!
I strongly recommend the latter course. Without a vigorous defense and counter-attack, the cannabis flower farming & processing industry, in its current form, will surely cease to exist.
Jim Plamondon: Precision Fermentation: An existential threat to the cannabis industry – Isolates
