Mile High Labs Funding Round Underscores Contrasts in Cannabis Wholesaling

By J.J. McCoy, Senior Managing Editor, New Frontier Data

Mile High Labs caught attention last week with the company’s announcement of a $35 million raise in what was described as the “largest Series A financing in the cannabis market history.”

It was a newsworthy claim for the Colorado cannabis extraction company, and demonstrated its commitment toward international expansion. However, having just reported CW Hemp’s IPO raise of $100 million+ last month, how does $35 million compare?

There is a challenging dynamic happening where the industry sees third-party “toll processors” providing their services to hemp and marijuana companies versus larger, vertically integrated companies performing everything from seed to sale.

“This fundraising continues to show how critical processors are in the supply chain,” explained Sean Murphy, publisher of Hemp Business Journal and New Frontier Data’s director of hemp analytics. “It also shows that the processors with the most capacity and ability to scale will continue to have leverage to set the price.”

In short, the emerging hemp sector is demonstrating signs of an oligopolistic market where there is not just one main player as in a monopoly, but instead a small number of producers or sellers who share the market and effectively set the prices. The $35 million raise reinforces this notion. There are five or seven dominant extractors/processors who are setting the hemp market’s prices because they have (and will maintain) both the capacity to process and an ability to scale.

Additionally, it incentivizes vertically integrated hemp-derived companies to reduce supply chain costs by avoiding big processors; thus limiting vulnerability to supply/demand changes in the market.

Currently, processed CBD wholesale products are generally bought and sold in three forms: full spectrum oil, isolates, and THC-free distillate. Extracts can come in a variety of forms including crude extracts (unrefined forms typically less than 50% CBD), refined extracts (including full spectrum oil [FSO] with typically more than 50% CBD), and THC-free distillate (typically between 60% and 80% CBD).

Pricing remains largely dependent on the concentration of CBD present in a wholesale product. Consider, for example, 1,000g of extract with a CBD concentration of 10% contains 100g of isolate CBD, and another product with 10,000g of 1% extract also contains 100g of CBD. Both products are priced purely on their total CBD content, and thus priced the same, despite the tenfold difference in volume of the product being sold.

Yet, it is not possible to establish pricing based solely on CBD as the active ingredient in hemp. There are many factors and inputs involved in buying and selling wholesale CBD products. As the market matures, and more purchase contracts are analyzed, an accurate CBD price index will developed. To that end, HBJ has established historical price ranges for CBD wholesale products based on an independent reviews of contracts, price sheets, and exclusive interviews with leading processors, producers, and brokers.

For more in-depth examination of the market and its dynamic activity, check out The CBD Report, HBJ’s definitive report on market sizes for the U.S. CBD market. It features more than 100 pages of primary research, market intelligence, investment analysis, survey results, data charts, and insights from industry leaders. More aggregated data about CBD wholesale pricing will soon be available in the Global State of Hemp Report, illustrating the value seen by investors in the hemp processing industry.

J.J. McCoy, New Frontier Data Senior Managing Editor

J.J. McCoy

J.J. McCoy is Senior Managing Editor for New Frontier Data. A former staff writer for The Washington Post, he is a career journalist having covered emerging technologies among industries including aviation, satellites, transportation, law enforcement, the Smart Grid and professional sports. He has reported from the White House, the U.S. Senate, three continents and counting.