The Future of Canada’s Legal Cannabis Market

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Canada’s recent recreational cannabis legalization is a great feat. The Canadian legal cannabis market has the potential to be huge and could conceivably have a massive influence on other countries.

Canadian Legal Cannabis Market

Canada is the first G7 nation to have legalized recreational cannabis.

Now that the huge black market for cannabis is slowly but surely turning into a legitimate one in Canada, many companies around the world in many different industries are trying to seize the opportunity and cash in.

Some of the industries these companies are part of include agriculture, fashion, beer, software, tobacco, and design.

Even though it is extremely clear that many companies are jumping on the legal cannabis market bandwagon, the size of Canada’s future legal cannabis market is still unclear.

Attitudes towards cannabis, the future size of the market, and the way in which the Canadian cannabis market operates will undeniably change and develop over time.

The fact that the course the legal cannabis market will take is so unknown is definitely affecting share prices as well as federal policy.

Canada’s recreational cannabis market will serve as an example for the world of how a legal cannabis market operates and develops.

Because of Canada’s legalization, many countries that have not yet fully legalized the drug are debating whether or not to amend their policies surrounding cannabis.

Estimates and Predictions

Numbers released by Statistics Canada show that 4.9 million people in Canada used cannabis last year. This means that $5.7 billion Canadian dollars, 90 percent of which went to the black market, was spent on cannabis in 2017.

Canada’s legal medical cannabis market has been around for 17 years and was worth $400 million Canadian dollars In 2017.

The following estimates and predictions were made prior to legalization regarding the legal recreational cannabis market’s potential:

  1. CIBC predicts that by 2020 the legal cannabis market will reach $6.8 billion Canadian dollars.
  2. Deloitte predicts that the legal recreational cannabis market may reach a whopping $8.7 billion Canadian dollars annually and have an “overall economic impact” of $22.6 billion Canadian dollars.

Experts that make estimates and predictions will adjust according to what has occurred since October 17th and likely come up with new numbers. The very first day of legalization, 100’000 orders were made on Ontario’s online store.

The Issue with Estimating

Coming up with accurate numbers when dealing with cannabis is extremely difficult since measuring sales of a product that was sold in the black market is tricky.

In order to make market estimations researchers assessed the supply side by:

  • interviewing farmers
  • looking at aerial images
  • extrapolating yields – estimating how much cannabis makes it to the market
  • looking at drug seizure data

Once the supply side is assessed, it gets balanced out with cannabis demand information.

For demand information researchers are stuck with intake questionnaires and surveys that aren’t very reliable. When researchers estimate true cannabis use, the majority of them round up by a third.

Due to the abundance of estimating that goes into coming up with legal cannabis market potential predictions, the true value of cannabis firms is largely unknown.

Acquisitions and Market Valuations

In the months approaching Canada’s legalization, several record-breaking acquisitions and market valuations were seen.

One of the major acquisitions occurred a couple months back when Constellation Brands Inc. spent $5 billion Canadian dollars and took a majority stake in Canopy Growth.

Upon the announcement of this acquisition, Canopy Growth’s shares went up 83%.

Additionally, Tilray, valued at $14 billion, has shares listed on the Nasdaq and has become the most valuable cannabis firm worldwide.

Upon legalization, most cannabis stocks went down. There is also a danger of cannabis firms getting too highly valued and actual sales not backing these values up.

With Canada being the first G7 nation to fully legalize cannabis, there is little concrete data of which to go off and there are likely more questions than answers at this point. Only time will tell. Stay tuned!

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