Bank of America analysts are skipping the typical marijuana stocks and instead they are focusing on the cannabis testing companies. The life sciences tools as they call them could be a $50-$100 million market by 2020.
The BofA estimate for this market is much smaller than other analyst estimates and they readily note that their figure is conservative. Other third party companies like GreenWave Advisors peg the figure in the $800-$900 million range. That forecast includes revenues from testing, consulting and other services for a market that could range anywhere between $35-$100 billion. ArcView Research believes the cannabis industry could reach $35 billion by 2020.
A more aggressive scenario would bring that figure up t $150 million. Of course, many of the estimates are based on assumptions in an ever changing market that is quickly evolving. Within their coverage, the analysts highlight Agilent, Waters Corporation and Thermo Fisher Scientific as key providers of cannabis testing tools. Other companies that they believe could enter the field include Perkin Elmer, Danaher and Bruner Corp.
One of the problems with the market is that there are no testing standards. Since marijuana is still a schedule 1 controlled substance, the government has yet to step in and create federal guidelines. For now it’s a hodge-podge of state standards that vary widely.
There is definitely a need for testing. A study in June of 2015 by the Journal of American Medical Association found 83% of edibles were mislabeled. The products need standardized testing so that consumers know what they are buying. When it comes to growers, the product is susceptible to multiple contaminants like bacteria and fungus and then the growers use fertilizers and pesticides that are mostly unapproved.
There are three ways to test cannabinoids. There is the thin layer chromatography, which is inexpensive and fast and used to determine strains from CBD dominant strains and fiber types. The report notes that CAMAG, a private Swiss company has 30% market share, followed by Thermo Fisher Scientific, which has 20% market share. This market is estimated to be $60-$70 million.
Gas chromatography is used for quantifying total cannabinoid content and the market is estimated at $1.8-$2.2 billion. It’s a fairly mature market with Agilent commanding 40-45% of the business. Other players include Shimadzu, Thermo Fisher and Perkin Elmer.
Liquid chromatography is the most widely used method to test for cannabinoid concentration. This market is estimated to be in the range of $4.25-$4.5 billion. Waters was first to market with this testing and owns 30% of the market share. Agilent is nest with 20-25% market share, followed by Thermo Fisher and Shimadzu.
Other leading testing companies include Steep Hill Labs, CannLabs, Digipath and Pazoo The testing companies themselves are facing challenges and scrutiny as regulators have found some businesses aren’t testing the product properly. Then, CannLabs announced in November that it was closing its Denver location in a dispute with the founder highlighting the difficulties in getting established in an emerging industry. Bank of America seems to prefer the more established medical testing companies over the start-up stocks that trade in the over-the-counter market.