Marijuana: A $75 Billion Market by 2030?
This investment bank just increased its sales forecast for the cannabis industry by 50%.
Instrumental to this surge in pot-stock market caps is a steady shift in the way the public views the drug. Gone are the days where cannabis was considered too taboo for discussion. Instead, politicians regularly discuss their views on marijuana while on the campaign trail, and parents freely talk about cannabis with their children.
Within the U.S., national pollster Gallup notes that almost two-thirds of all respondents in its October 2017 poll favored the idea of legalizing weed. That's up 39 percentage points from where support stood for legalization in 1995.
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The marijuana industry could be much bigger than you realize
According to a new note published this past week by investment firm Cowen (NASDAQ:COWN), the total cannabis market could generate as much as $75 billion in gross annual sales by 2030, up from a previous forecast of $50 billion by 2026.The investment bank's initial forecast was released in September 2016 via a 110-page report from beverage, tobacco, and cannabis sector analyst Vivien Azer and her team. The report, "The Cannabis Compendium: Cross-Sector Views on a Budding Industry," highlighted the many potential applications of legal cannabis and outlined pathways that would allow the weed industry to reach $50 billion in sales by 2026. Chief to that thesis is the expected legalization of marijuana in the U.S. at some point before 2026.
The investment bank's new note lifts its projected sales estimate by another 50% ($25 billion), while adding on just four additional years. Cowen offered six reasons behind its decision to become even more bullish on the outlook for marijuana. Chief among them was proprietary data on binge-drinking statistics among U.S. states that showed a notable decline in binge drinking below the national average in states that had legalized cannabis. It's Cowen's assumption that as more states legalize pot, binge-drinking rates would be expected to fall as consumers opt for cannabis in place of alcohol.
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Cowen even suggests that the United States' fight against the opioid epidemic could lead to an increase in cannabis consumption. Per the report, "Newly published research reinforces the work that we have already done, showing that for some, cannabis is an effective opioid substitute (in particular in treating chronic pain)."
Three industries Cowen believes will benefit from the green rush
More importantly, upping its annual sales forecast for the cannabis industry to $75 billion by 2030 suggests that there should be direct and indirect winners associated with this green rush. In particular, between its 2016 and 2018 note, three industries stand out.First, we have the growers. Of course, Cowen is pretty particular about the growers it prefers, with market-outperform ratings saved for Canopy Growth Corp. (NYSE:CGC)and MedReleaf(NASDAQOTH:MEDFF).
Canopy Growth has growing facilities being constructed on 3.7 million square feet of land in British Columbia, which may wind up pushing its fully funded annual capacity over 300,000 kilograms. Canopy also has the most enviable distribution channels of any pot stock, with physical retail outlets, online sales, the most recognizable brand name in Canada (Tweed), and spirits-giant Constellation Brandsas a minority owner and project partner.
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Secondly, Cowen has shown favorability toward packaging and marketing companies -- and more specifically, Kush Bottles(NASDAQOTH:KSHB).
Following the release of strict packaging and labeling requirements for recreational cannabis from Health Canada, it only makes sense that Kush Bottles, which works with thousands of growers, could play a key role in helping these producers maintain compliance. Kush was also the top-performing pot stock during the first quarter, gaining 22%.
Finally, in 2016, Cowen suggested that quick-service restaurants stood to see an uptick in business. Cannabis use is well-known to cause "the munchies," which makes quick-serve establishments the perfect solution for hungry pot smokers.
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