The Covid years have been very good for the cannabis industry. According to cannabis market research firm BDSA, global legal cannabis sales in 2020 were 45% higher than in 2019, with several leading cannabis companies reporting triple-digit growth in revenues in 2020 over the previous year. These included Trulieve Cannabis , Curaleaf, Verano , Cresco Labs , Green Thumb Industries and TerrAscend .

Moreover, the healthy prospects of the global cannabis market were reflected in the mergers and acquisitions (M&A) activity of last year. Two deals pertaining to the cannabis industry—Jazz Pharmaceuticals ‘ acquisition of GW Pharmaceutical, and Trulieve Cannabis’ acquisition of Harvest Health & Recreation—had multi-billion-dollar valuations.

Two themes have driven the growth of the cannabis market during the pandemic. The first is the growing desire among consumers for products that enhanced their health and wellness. The second is the continued legalisation of medical and non-medical cannabis, especially in the US.

The pandemic has exacerbated concerns about health and wellness

During the height of the pandemic, consumers were understandably more concerned about their health and wellbeing than they had been before. Not only did Covid-19 directly threaten consumers’ physical health, but the social distancing measures implemented to limit the spread of the virus forced consumers to remain indoors and refrain from socialising with friends and family in person.

These measures threatened consumers’ mental health, and GlobalData’s Consumer Survey for Q1 2021 reflects this. The survey showed that 26% of consumers were ‘quite concerned’ about a product’s impact on their health/wellness, while 38% were ‘extremely concerned’. GlobalData’s Consumer Survey for Q1 2022 shows that very little has changed a year later. The survey shows that 32% of consumers are ‘often’ influenced in their product choice by how the product impacts their health and wellbeing, with 34% ‘always’ being influenced.

The growing influence of health and wellness concerns on consumer purchases is also reflected in the M&A activity in the consumer goods sector for last year. In its report ‘Global M&A Deals in 2021 – Top Themes in the Consumer Goods Sector’, GlobalData identified health and wellness as the second most important theme driving M&A activity in the consumer goods sector.

Cannabis products can address consumers’ health and wellness concerns

Many cannabis products align with the three key consumer preferences that are driving the health and wellness trend, as identified in GlobalData’s 2021 TrendSights analysis report on health and wellness. First of these is consumers’ concerns regarding mental well-being, which has been hit hard by the pandemic. Second is the increase in consumer desire for natural products, as improved access to information enables consumers to become more informed about their personal health and wellbeing. Third is the growing preference among consumers for plant-based alternatives, to which health concerns contribute.

Cannabidiol (CBD) is one cannabis product that ticks all three of these boxes. CBD claims to alleviate anxiety and stress and improve sleep. In addition, it is non-psychoactive—that is, CBD does not directly bind with the cannabinoid receptors in the brain in the same way that tetrahydrocannabinol (THC) does. As such, CBD does not cause the high that THC does.

As a result, CBD, as typically advertised, can improve consumers’ mental health and wellbeing without chemically intoxicating consumers the way smoked cannabis does. Coupled with the fact that CBD is a plant-based product and not usually produced synthetically, CBD meets all the relevant criteria to appeal to health and wellbeing-conscious consumers.

Cannabis legalisation is spreading

Non-medical use of cannabis was legalised in more regions over the past two years, expanding the legal cannabis industry’s customer base. Several US states legalised recreational cannabis use in this period, including Arizona, Montana, New York, Connecticut, New Mexico and Virginia. Illinois legalised recreational cannabis use in 2019, but this legislation only came into effect in 2020. BDSA points out that legal cannabis sales in the US grew 46% in 2020 and cites new adult-use markets in the US as a reason for this growth. Outside the US, Malta legalised recreational cannabis late last year.

Will growth continue?

As mentioned above, GlobalData’s Consumer Survey for Q1 2022 shows that concerns about health and wellness remain as influential as they were a year before. In the US, the legalisation of recreational cannabis gradually spread throughout the 2010s and continues to do so. Germany’s new chancellor, Olaf Schultz, has expressed ambitions to legalise recreational cannabis, and the legalisation of recreational cannabis was delayed in Luxembourg last year only because of Covid-19.

In summary, the regulatory trends and changing consumer preferences that have thus far driven the cannabis industry’s recent growth show no signs of abating. Recent M&A activity suggests that this is not lost on either cannabis companies or the consumer goods sector in general. After all, three of the ten most valuable M&A deals of Q1 2022 in the consumer goods sector were acquisitions of cannabis companies. One of these deals, Cresco Labs’ acquisition of Colombia Care, was valued at $2bn.