A new cannabis industry analysis sent to clients of RBC Capital Markets, and investment bank that’s part of Royal Bank of Canada, projects that total legal cannabis sales in the United States could rival beer, wine and cigarette sales over the next decade. Nik Modi, the analyst behind the memo, weighs several key data points from BDS Analytics. And it highlights some important shifts and new trends in the cannabis industry landscape.
Legal Cannabis Sales Gaining On Wine and Cigarettes
The U.S. marijuana industry is growing at a rapid pace. Or specifically, 17 percent compound growth rate annually, according to RBC Capital Markets’ Nik Modi. Calculating that CAGR against a BDS Analytics data point that places total illegal and legal cannabis sales in the U.S. at $50 billion, Modi believes that over the coming decade U.S. cannabis sales in the legal sector can broach $47 billion annually.
Another data point from BDS Analytics Modi references in the analysis is the relative size of the U.S. cannabis market compared to spirits, wine, cigarettes and beer. All four categories currently best cannabis at the $50 million figure mentioned above. Spirits account for the next highest market at $58 billion. Beer reigns supreme at $117 billion.
Comparing cannabis to the market for these substances, Modi’s report draws clients’ attention to the recent investments beverage companies are making in the bourgeoning cannabis sector. Constellation Brands, the firm behind Modelo, Corona and Svedka, recently made its second major investment in Canadian cannabis giant Canopy Growth Corp. Constellation’s $4 billion dollar investment follows up on a previous investment that secured a 9.9 percent stake in Canopy Growth. The $4 billion investment ups that stake to 38 percent with an opportunity for future investments.
As legalization expands to other states, Modi is confident that cannabis sales can continue to gain ground on alcohol sales, even if they don’t completely overtake them. Major beverage companies, however, can leverage their investments in the cannabis industry to increase sales in that segment of their revenue model.
Wall Street Analyst Says Concentrates and Edibles are Pushing Out Flower
Another factor in Nik Modi’s $47 billion annual sales projection is a significant shift in preferred cannabis products. Citing more data from BDS Analytics, Modi points to a shift among adult-use consumers away from flower toward cannabis concentrates and edibles.
In Colorado, for example, BDS Analytics sales data shows that from 2014, when retail sales began, to Q4 2017, edibles and concentrates steadily increased their share of the market. When sales began in 2014, for example, cannabis flower accounted for 70 percent of legal sales. By the end of 2017, flower made up just 46 percent of legal sales in Colorado. Picking up the slack were edibles and concentrates.
Medical cannabis consumers will also likely increase the market share of edibles, concentrates and other non-botanical products. Some states have banned smokable forms of cannabis for medical consumption. However, such measures have been challenged, and in some cases successfully
Analyst Sees Bright Future for U.S. Cannabis, Despite Risks
Investing in U.S. cannabis carries risks. But investors, entrepreneurs and others in the industry seem to be growing less concerned about federal actions against their operations. RBC Capital Markets’ analysis takes an optimistic view on the legal future of cannabis in the U.S. Pointing to overwhelming—by some counts 86 percent—support for some form of legal cannabis among voters, Modi is confident expanded legalization can take sales past $47 billion annually by 2027.