*Updated 18th November, 2018
In any business, the total addressable market size is always extremely important. What's the potential? How much is this industry actually worth?
The term $20 by 20" has often been used to describe the US Marijuana market. The potential size of the industry by 2020 could be $20 billion. Now, as we sit on the doorstep of 2019, analysts are looking to refine and revise these numbers.
This week two leading research companies released reports that speculated as to the potential size of the US marijuana industry over the coming decade.
New Frontier Data released an updated report on the state of the cannabis market, The U.S. Cannabis Report: 2018 Industry Outlook, which determines that the legal cannabis industry will continue experiencing rapid, sustained compound annual growth rate (CAGR) of 17 percent, over the next few years.
RBC Capital Markets, an investment bank that's part of Royal Bank of Canada, issued a memo to clients outlining the rapid growth of the U.S. marijuana sector. The memo, authored by Nik Modi, shows how cannabis sales in the U.S. are gaining ground on beer and wine sales. Again, via rapid and sustained growth in the coming decade.
As the above chart form the BDS Analytics reports shows, the current US market (albeit both legal and illegal sales of cannabis) is fast gaining ground on the other monster consumer product markets such spirits, wine, cigarettes, and beer. Interestingly, it's unclear what proportion of the $50 billion is made up by illegal sales.
So what's driving this growth?
For a start – it's the public perception of the plant itself. Over the past couple of years, the American public have become more and more pro the legalisation of both medicinal (primary) and recreational marijuana.
Over the past 20 years, the scales have moved to tip heavily in favour of legalisation of marijuana. According to the latest survey results from Gallup, 66% of Americans are now in favour of legalising marijuana. To put this in perspective, more people now want marijuana legalised than are pro gay marriage!
What was really significant, was that for the first time, the majority of Republicans were in favour. 51% of the Reds were in favour of legalsiing with 51% of Americans aged 55 and over also giving their stamp of approval.
71% of Democrats were in favour, while 78% of Voters aged 25 to 55 want marijuana legalised at the Federal Level. It is honestly only a matter of time before Congress bow to the will of the people. Isn't that the point of Democracy?
The Pew Research Center found that support varies from generation to generation, although it has been rising among all age groups over the past few years. Without a doubt though, the majority of millennials believe that it should be legalised and the difference in percentage is noticeable against the older generations. This is expected given the heavy public relations campaigns to position marijuana as an evil gateway drug.
And with this public opinion, is the increase in the use of Cannabis, as it becomes more socially acceptable and readily available. A new survey finds that one in seven had used marijuana in 2017, with smoking of flower being the most commonly used method of consumption, according to a report published in the Annals of Internal Medicine.
However, what was interesting to note was that in states where it was recreationally available in all forms, edibles and vaping were the most popular form of consumption, researchers found in the nationally representative survey of 16,280 U.S. adults. Baked goods or pastries and candy were the most common forms of edibles consumed by U.S. adults. The rise of edibles in the past couple of years has been hyperbolic. Extracts are fast becoming the way to ingest cannabis. Already in most dispensaries, they account for nearly two-thirds of the menu board.
According to New Frontier Data, by 2025, more than a dozen more states are expected to pass new cannabis laws, further fuelling the projected growth. A handful of other states are expected to pass recreational marijuana laws, including the East Coast states of New Jersey, New York, and New Hampshire.
In the recent November Mid-Term Elections, marijuana was, once again, in the news. This time Michigan became the 10th State to legalise cannabis for adult recreational use, while Utah and Missouri brought the total number of States with legalised Medicinal Marijuana to 33. 1 in every 5 States now has legalised Cannabis (either recreational, medicinal or both).
By 2020, several states will have large markets for legal cannabis: California, Colorado, Florida, Massachusetts, Michigan, Oregon, and Washington. The medical markets in Florida and Michigan will be as big as the recreational cannabis markets in Oregon and Massachusetts. The report went on to state that Washington is expected to be the largest recreational marijuana market until 2020, which will then will be overtaken by California.
But it's not just localised growth. Oh no, this is a global evolution taking place. Over the past couple of years, the global market has been awakening with the same infectious growth rate. In the past 24 months, Germany, Israel, and Australia have all established medical markets with Germany's being the most impressive and progressive, and Australia's the worst, but getting better. German patients can more easily qualify, but since domestic cultivation is banned, Germany relies on cannabis imports from countries like Canada to meet their domestic demand.
Obviously, on October the 17th, Canada becomes the first G-7 country to legalise for recreational use at the federal level, and this has really opened up the Canadian capital markets. Investors, ideas, money and muscle have been steadily flowing into the market in preparation for a landmark event that will catapult the industry as a whole.
Portugal, Italy and France all have nascent medicinal industries blossoming internal, and the Scandinavian Countries are following right behind them. Ironically it is the UK that lags the furthest back, having finally been "bullied" into discussing the issue and topic as a result of some very high-profile childhood epilepsy cases that have garnered the attention of the national press and been monumental in dragging policy makers to the table. The European market has awoken from its sleep and is currently stretching. Wait until it gets out of bed.
So with all the various numbers being bandied around, what is the ultimate takeaway of this all? Cannabis is one of the latest growing industry on the planet with compounded, year on year growth is being predicted, at the most prudent case, at 12% and within this market, the extracts and edibles product range is gaining traction and is the shining prodigy of the booming greenish.
This super-bull market still has a long way, and a lot of growth, to go.
And they told you money doesn't grow on trees.
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