Countries around the globe are embracing marijuana consumption recreationally, just like alcohol and tobacco. According to a study conducted by the Brightfield Group, a cannabis market research firm, the international market for pot is approximated to balloon to $31.4 billion by 2021.
Currently, the global market is worth around $7.7 billion and can see a 60 percent annual growth rate as other countries liberalize their marijuana laws. At present, the US is the main driver of global cannabis sales making up 90 percent of the total trade. However, its share is projected to drop to 57 percent by 2021. This forecast comes after Canada’s plan to legalize recreational marijuana later this year. Investors looking to profit from this promising industry are eyeing Canada as supply limitations and rapid increase in demand will likely create new opportunities.
Trudeau vowed to legalize marijuana across Canada by July of this year. If the proposed legislation pushed through as planned, Canada will be the first advanced industrialized nation to fully legalize recreational marijuana from production to consumption. Under this law, the government would license the growing of ¬cannabis by tightly regulated producers and set standards for potency and penalties for abuse. However, it is up to the provinces to decide what distribution process to adopt.
At present, Canada licensed producers could only provide five percent of the potential demand for recreational pot, serving a medical marijuana patient base of 200,000 people. But with looming legalization, it is expected to reach millions of recreational consumers. In addition, the number of medical marijuana patients has already tripled in the last year and continues to grow at seven percent month on month. Deloitte estimates the total economic impact could reach $22.6 billion annually, more than the joint sales of beer, wine and spirits.
Not only will the legalization gives Canada an international edge, it puts Canada at the forefront of a growing international business, poised to become innovators—not only in exporting cannabis and cannabis products, but also the expertise and technology to grow it.
Eliminating the black market
With legislation in place, Canadian government hopes to eliminate the black market, an illegal business linked to criminal organizations, with the help of private corporations. It is these licensed corporations that have the task of turning a big business that’s operated outside the law into a legitimate legal enterprise.
Besides having to navigate through new government regulations, laws and bylaws that are still in its formative stage, these companies will have to find a way to draw the estimated five million existing consumers away from the black market.
“Just like any other competitor entering a new market, the incumbents aren’t going to give up easily,” says Kyle Murray, vice dean of the University of Alberta’s school of business.
Greg McLeish, an analyst from the investment firm Mackie Research Capital Corporation, believes that price and convenience will be key in determining where people buy their weed. He also points out that its more prudent to absorb people from the existing underground cannabis culture into the legalized system.
Alberta-based Aurora Cannabis, one of the pioneers in the industry, is doing just that. Cam Battley, Aurora’s executive vice president, says their company has created a unique hybrid culture “made up of suits like me, people from business backgrounds as well as people from the cannabis culture and have extensive knowledge and passion for the cannabis plant itself.”
Battley is optimistic that the Aurora’s diversity and international strategy will help the company withstand problems that will likely happen from a bungled retail rollout at the provincial level. Specifically, on Ontario’s plans for retail sales, Battley adds, “I have concerns they will not get it right. This very limited, very controlled government monopoly approach will not crack the black market.”
The impact of legalized recreational marijuana in Canada will have a domino effect. The emerging cannabis enterprises will now need to hire more professionals to handle administrative work, finance, marketing, distribution channels, public relations, and legal matters. They will need skilled workers to fill production line, frontline service, and delivery. They will need to lease spaces for operations and productions. They will need to buy equipments, furnitures, and office supplies. They will be paying taxes and hiring people who will also pay taxes.
But just like in any other industries, many will enter the market, but not all will survive. Murray believes that companies who are more innovative, more efficient in production, and can control costs are likely to thrive. While there’s great potential for growth, investors and entrepreneurs should tread carefully.
How profitable the recreational marijuana market ends up being for the government remains to be seen. While there is a need to keep prices high to discourage consumption among young people, it is also important to know that if prices are too high, illicit producers will stay in business.