How U.S. Cannabis Could Be A $108 Billion Industry TODAY

How U.S. Cannabis Could Be A $108 Billion Industry TODAY
How U.S. Cannabis Could Be A $108 Billion Industry TODAY
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Cannabis investors regularly see projections on the future size of the cannabis industry, in the U.S., in Canada, and globally.

Some of them project very impressive growth rates. They are all conservative, such as this global estimate:

Legal Marijuana Market Worth $66.3 Billion By 2025 | CAGR: 23.9%

The revenue and growth potential of the cannabis industry greatly exceeds all estimates currently on the table. All that is standing in the way of phenomenal growth in the cannabis industry is government intransigence.

Recent sales data from the U.S. cannabis industry shows that cannabis could be a $108 billion U.S. industry today (and growing rapidly) if cannabis had already been legalized at the national level. And that excludes the separate potential for hemp and hemp-derived CBD.

The data comes from Colorado. As The Seed Investor regularly points out, Colorado leads all jurisdictions in terms of its success in not just cannabis legalization but cannabis normalization.

Colorado doesn’t just have the world’s largest/strongest cannabis industry (per capita). It has also done the best job in eliminating the cannabis black market and approaching a fully legalized cannabis industry.

Yet recent sales numbers indicate that Colorado’s cannabis industry still has enormous growth potential. Cannabis revenues have set new sales records in three of the last four months. Those numbers now make cannabis nearly a $2 billion per year industry in Colorado.

Colorado has a population of 5.7 million people. The United States has a population of 329 million – roughly a factor of sixty versus Colorado.

Here it gets really simple. If cannabis was already legalized nationally and other U.S. states had been as efficient and enlightened as Colorado in its regulation, the U.S. cannabis industry would be a $108 billion industry today.

Obviously, that hasn’t happened. And the U.S. cannabis industry can’t move from its present size to $108 billion per year overnight. But cannabis consumption is already becoming a new U.S. consumer tradition.

Congress is seriously discussing national legalization of cannabis today. If it doesn’t happen now, it will happen after the 2020 election. A total of 1,170 federal and state bills for cannabis reform have been tabled in the U.S. during 2019 sessions.

Again, it’s simple. A broad majority of Americans support cannabis legalization, including majorities from all political stripes.

Promising to legalize cannabis is now a clear vote-getter. Very few politicians can refuse to embrace policy initiatives that are this popular.
Support for the legalization, taxation, and regulation of marijuana is at an all-time – and we swear, we’re going to limit the tired marijuana puns, metaphors, and the like, but uh, yeah … it’s at an all-time high.

The chart below is stunning in the steady uptick of support since 2017, as well as the recent spike all the way up to 68% of Americans being ready to support legalization.

Once cannabis is legalized nationally in the U.S., undoubtedly we will see more and more state governments seeking to imitate Colorado – for the tax dollars alone.

Colorado has now collected over $1 billion in taxes and fees from its legal cannabis industry. Projected nationally, that’s $60 billion in tax revenues potentially on the table for U.S. states.

Meanwhile, many other states are still spending millions ($10’s of millions?) each year enforcing archaic and obsolete anti-cannabis laws.

California, which has mismanaged its own legalization, has launched a new, costly (and doomed to failure) War on Drugs on its cannabis black market. It’s squandering millions of tax dollars when it could accomplish far more – without spending a penny. All it needs to do is copy Colorado and tax-and-regulate its own legal industry in a sensible manner.

As U.S. voters rapidly wise-up on how safe and benign cannabis is, governments that continue to obstruct legalization (and lose out on all those tax dollars) will be voted out.

However, this isn’t the only way of illustrating how much greater the growth potential is for legalized cannabis than current projections.

Another metric that The Seed Investor regularly covers is the potential of legalized cannabis as an alcohol substitute. Alcohol is seriously undermining the health of (and killing) more and more people – especially in combination with prescription drugs.

As a result, the alcohol industry is a $1 trillion per year industry that is now in permanent decline. Where are those revenues going to go?

To legalized cannabis. Unlike alcohol, cannabis is non-toxic and non-addictive. It’s completely safe to use in combination with prescription drugs.

A May 2019 report from Cowen Equity Research indicated:
  • 70% of Canadian cannabis consumers reduced their alcohol consumption as a result
  • 64% of U.S. cannabis consumers reduced their alcohol consumption
  • In giving their “reasons for consuming cannabis”, 41% of Canadians explicitly indicated it was “an alternative to alcohol”

Now the Big Picture. If just 15% of global alcohol consumption shifted to cannabis, that would be an additional $150 billion year in cannabis revenues. And that is the equivalent of consuming cannabis instead of alcohol just one day per week.

Then there is the U.S. A January 2018 CNN article provided one of the most bullish projections for the size of the U.S. cannabis industry: $21 billion by 2021.

In the U.S., alcohol sales are roughly $230 billion per year. If U.S. consumers shifted from alcohol to cannabis one day per week, that would be an additional $35 billion per year in U.S. cannabis revenues.

Then there is conversion from U.S. black market cannabis to legalized sales.

MJBizDaily reported in May 2018 legal U.S. cannabis revenues of ~$6 billion for 2017. Total cannabis sales in the U.S. were estimated at over $50 billion.

This means that legalized cannabis is currently just the tip of the iceberg in terms of total cannabis revenues. Roughly 90% of the dollars already on the table today are still going to the black market.

Done right, the U.S. cannabis industry could become a $108 billion per year juggernaut (and still growing) within the next election cycle. Even done badly, the real growth potential of the U.S. cannabis industry clearly exceeds the most optimistic projections.

For cannabis investors, you can put that in your pipes and smoke it.
Cannabis Focus, Cannabis Industry
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