Cannabis is a booming market, with many anticipating that sales figures will double, triple, and quadruple in the coming years as more countries propose legislation legalizing recreational marijuana use. While a rising tide lifts all ships, not all companies are positioned to take advantage of this increase as much as some others.
Despite this, however, most analysts expect the major cannabis companies in U.S. and Canada to explode over the coming years. A New York-based investment bank, Jefferies Group LLC, has begun coverage over several companies in the cannabis industry on Monday as well as saying that the market could reach $130 billion by the end of 2029.
According to BNN Bloomberg, Jefferies has taken into account current legalization trends in Europe and Latin America, but for the sake of their projection only uses figures from currently legalized nations. The figure also includes other auxiliary niches such as edibles, pharmaceuticals, pet care, and other areas that can incorporate CBD-derivatives into their product lines.
“For the sake of prudency, and due to a lack of visibility around the likelihood and timing of law changes in other markets, these projections only capture major markets (and U.S. states) where cannabis is currently legalized,” read their 254-page report issued by analysts Ryan Tomkins and Owen Bennet. “Given the prudent approach to our base, we could flag a reasonable chance that numbers could actually come in ahead of our projections.”
The estimate goes on to include the current black-market surrounding cannabis, which is globally evaluated at between $150 billion to $200 billion. In contrast, the current legal cannabis market is estimated at around 12.3 billion. While the black market is expected to continue to operate for a while, each year a greater percentage of these illicit transactions will move over to legal alternatives.
“The above scenario materializing any time soon is highly unlikely, however,” Jefferies said. “First you would need all global markets to become legal, and then you would require all illicit users to switch over. Both [are] not going to happen,” the analysts added in reference to the illicit cannabis market.
Jefferies, in contrast to other financial institutions, had a bearish outlook on the cannabidiol (CBD) market, expecting the market to be worth only $3 billion within the next three years, reaching barely $4 billion by the end of 2029. This figure wildly differed from another report released by Cowen & Co., which estimated the U.S. CBD market would be $16 billion by 2025.
The estimate derived that figure assuming that a generous 10 percent of the U.S. population would use CBD products in one way or another and would spend on average $640 per person. Considering that some CBD products would be involved in large industries such as beauty products and health, such a figure seems quite possible. A survey conducted by Cowen indicated that out of a 2,500-sample population of adults, 6.9 percent of respondents use CBD as a supplement.
“This initial response piqued our interest considerably, as it was much higher than we would have suspected,” said Cowen analyst Vivien Azer in a note, comparing the figure to the 4.2 percent who reported to use e-cigarette devices and 19.6 percent who are current tobacco users.
Overall, the cannabis market reacted positively to this announcement, with many of the companies that Jefferies initiated coverage on saw increases in their stock price.