By: Jonathan Cooper
Long/short equity, value

Summary

Colorado and Washington imply ~$270 and $209 per person per year revenues from cannabis in a mature market.

If cannabis is legalized nationally, the market would be enormous.

I estimate the market size to be ~$90.5 billion in 2028 if mature.

Colorado’s experience shows that maturation might take ~4 years for growth to level off once stores are open.

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According to a note from RBC Capital Markets, American cannabis sales are quickly catching up to those of beer and wine, and the market could be worth $47 billion within a decade:

“‘In this US, the legal cannabis category is set to grow at a 17% CAGR over the next decade to as much as $47 billion in annual sales (this compares to the current diaper category at $4 billion in sales),’ the analyst Nik Modi wrote.” Markets Insider, August 22, 2018

In this article, I will look at how large the cannabis market might be based on data from states where recreational cannabis is legal, especially Colorado and Washington. This data may be useful for inferring the size of a “mature” legal cannabis market in the United States.

I anticipate that recreational cannabis will be legal in a decade, given that more than half of Americans favor legalization. Thus, it may be appropriate to look at the potential size of the American market when measuring cannabis investments, be it in a personal portfolio, or be it a corporate investment like that of Constellation (STZ) into Canopy Growth (CGC).

Based on my estimate below, I estimate a $90 billion market size in 2028, if legalized soon enough for that market to be “mature” – say if legalized by ~2023. That enormous market is why companies like Constellation are willing to put $4 billion into Canopy Growth, when the latter just reported C$78 million in annual revenue.

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