Legal Cannabis Industry in the US Poised for Huge Growth
$MO, $RAI, $COWN
The legal cannabis industry in the US may grow to $50-B in the next 10 yrs, expanding to more than 8X its current size, as lawful marijuana sellers gain new customers and win over users from the illicit market, that according to a new report Monday.
Legalizing recreational use in California, where the drug is already medically permitted, is on the ballot in November, and approval of that measure alone would 3X the size of the nation’s current $6-B legal industry, according to a report from 10 Cowen & Co. (NSADAQ:COWN) analysts.
Voters in 9 states will vote on marijuana-related initiatives this November; 5 to legalize the drug for all adults and 4 to allow for medical use.
Marijuana is legal for recreational use in Alaska, Colorado, Oregon, Washington and the District of Columbia, and is medically permitted in 25 states. Cowen’s forecast assumes federal legalization of the drug, a measure that has more than 54% popular support.
“Cannabis prohibition has been in place for 80+ years, but the tides are clearly turning,” the Cowen analysts said.
The expanding industry will affect big business even though the current competitive landscape is largely made up of smaller startups. Because the plant is still federally illegal, large companies shy away from getting involved.
Legal marijuana is a major opportunity for Big Tobacco, Cowen said.
Vapor technology, a popular technique for ingesting both tobacco and cannabis is an essential part of tobacco’s less combustible-dependent future. Companies like Altria Group Inc. (NYSE:MO) and Reynolds American Inc. (NYSE:RAI) have expertise in vapor and marijuana crop-growing technologies, as well as familiarity dealing with complex regulatory frameworks.
Tobacco companies may make up about 20% of the cannabis industry by Y 2036, adding more than 20% to their revenue, and nearly 2X’ing tobacco’s underlying growth, the Cowen analysts said.
For alcoholic-beverage makers, legal marijuana is more foe than friend.
Alcohol consumption has declined over the past 5 years, especially with men, while marijuana use has risen. The number of drinkers who also used canabis increased, and the number of cannabis users who drank decreased, Cowen said.
For both the potential winners and losers, the scale of the changes to come are unusual, the analysts said.
“A 24%, 10-year revenue compound annual growth rate is hard to find in consumer staples, in particular one with a $50-B+ end-point,” Cowen said.
Cannabis has come out of the basement.