Strategies Unlimited research director PHILIP SMALLWOOD questions the potential impact that recent legal issues regarding cannabis may have on opportunities in the emerging LED-based horticultural lighting market.
Strategies Unlimited has been tracking the packaged LED market for more than 15 years, and I've been following the general illumination market for almost a decade. I can honestly say that the horticultural lighting research I have been doing reminds me of 2010-2011, when LEDs just started making headway into the general illumination market. There was great potential in this new technology to change the market, but there were still several hurdles - cost, light quality, low-quality products, and a lot of misinformation, to name a few. Still, the excitement of where the market could go was palpable.
To me, the enthusiasm for this market is not only driven by how large this particular lighting market can get but also by the potential disruption LEDs can have on these markets. But what happens when new opportunities like this meet with possibly growth-stunting obstacles?
On Jan. 4, 2018, it was reported by the Associated Press that the Trump Administration will free federal prosecutors to enforce federal marijuana laws more aggressively by rescinding the "Cole memo," effectively threatening to undermine the legalization movement that has been implemented in several states. (See an article from Leafly for an overview of the Cole memo and its significance to growers - and their suppliers). Twenty-nine states and the District of Columbia currently have laws broadly legalizing marijuana in some form, be it for recreational or medical use. Colorado, Oregon, Washington, and Alaska have had a recreational marijuana market for some time, while California, Massachusetts, Maine, and Nevada all passed measures in November 2016 legalizing recreational marijuana.
In October 2017, Strategies Unlimited released its latest horticultural lighting report, which broke out the potential market for cannabis in North America amongst other products like ornamental and fruits and vegetables. It was my assumption that a Republican federal government would not try to supersede states' rights and regulate existing markets within their borders, especially when an October 2017 Gallup poll found that 64% of Americans (72% Democrats, 67% Independents, and 51% Republicans) support the legalization of marijuana, as reported by the Washington Post.
While we do not know what the impact of this activity will necessarily be on this growing industry, it most likely will not be positive. Legal cannabis growers can already face steep hurdles in setting up operations, including cumbersome state regulations, difficulty in obtaining financing, and strict operations controls. The uncertainty and fear created by potential raids by the federal government and potential jail time are not good for business, to say the least.
The potential impact for horticultural lighting companies could be very negative. From our research, we estimated that there were approximately 7.7 million ft2 of legal commercial cannabis growing area in the United States in 2016 and forecasted that this area would cover approximately 30 million ft2 by 2022, with LED fixtures accounting for less than 7% of all installations.
This led us to the conclusion that there is huge potential for LED technologies to penetrate into the market, especially as LED fixture prices continue to decrease, our understanding of plant photobiology increases, and as LED technology would allow for more flexibility and control of production. Due to these factors and others, we forecasted that the horticultural lighting market for cannabis in the United States would be worth over $400 million by 2022, with LED fixtures making up more than 71% of the total market.
It remains to be seen whether those forecasts and market opportunities will shift based on what comes next. We'll continue following these regulatory concerns and report on new developments as we learn more.