A sceptic’s guide to the cannabis boom, part I

By 2025 the legal cannabis market is expected to reach $146.4 billion.

I have no idea why the prediction isn’t just for $146 billion. But Grand View Research has decided that decimal point is important, so I’ll keep it.

RBC Capital Markets is predicting the legal cannabis trade will be worth $47 billion in the US alone.

It has worked out a compound annual growth rate of 17% for cannabis sales over the next decade.

Big predictions like this are now coming thick and fast, after major manufacturers have shown interest in making cannabis products.

From beer to fizzy pop to health, recovery and wellness drinks, drink makers of the world are jumping on the bandwagon before it goes on parade.

But it’s not just drink makers. Medical companies, from startups to pharma giants to biotech pioneers to “alternative health” advocates are loading up on cannabis research and products, too.

And let’s not forget about the food companies.

Cannabis “edibles” as they are known are expected to see market growth far in excess of the overall cannabis market.

Research and Markets, “the world’s largest market research store”, currently has a $1,000 report predicting a compound annual growth rate of 25.01% in the edibles market over the next four years.

Again, I’m not sure how it worked out that .01%, but ridiculously precise predictions aside, everyone seems to think cannabis is going to make a lot of people a lot of money.

My question for today is, will it?

Why are the predictions so big?

First let’s take a look at the market size.

As said above, Wall Street is predicting massive growth for cannabis markets worldwide. Although mostly in the US and Canada to begin with.

However, we’ve all seen big predictions like this before. And it’s fair to say, very few industries live up to their Wall Street hype.

But this time, it’s different! Right?

Well, actually it may be.

The thing about cannabis is, we already know there is a huge market for it. A currently illegal market, yes. But a huge market nonetheless.

In 2016 the illegal market for cannabis was $46.4 billion. So, we already know there is an absolutely huge demand for recreational cannabis.

And this is an almost purely recreational market. And almost purely cannabis smokers.

As food and drink companies like Coca-Cola begin making and marketing cannabis products, we can expect this demand to increase even more.

From Time:

Coca-Cola says it’s monitoring the nascent industry and is interested in drinks infused with CBD — the non-psychoactive ingredient in marijuana that treats pain but doesn’t get you high. The Atlanta-based soft drinks maker is in talks with Canadian marijuana producer Aurora Cannabis to develop the beverages, according to a report from BNN Bloomberg Television.

“We are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world,” Coca-Cola spokesman Kent Landers said in an emailed statement to Bloomberg News.

As you can see from that excerpt, food and drink companies are looking at cannabis from a different direction.

The perfect product for millennials

Traditionally, people have viewed cannabis as a recreational drug people use to simply get high.

However, over the last few years there has been more and more research into the non-psychoactive part of the plant – cannabidiol (CBD).

This is what companies like Coca-Cola are interested in. CBD is being touted as the next health craze.

CBD has been proven to help with myriad health issues, from pain to inflammation to withdrawal to epilepsy to anxiety to diabetes and even cancer and Alzheimer’s.

And for people who like to exercise, such as a whole wave of health-conscious millennials, it’s being touted “as essential as vitamin supplements to keeping you active and healthy.”

From Men’s Health:

CBD could be a boon to people looking to ease the soreness and inflammation that comes with intense training and exercise. Dr. Titus thinks that the compound could be even more beneficial than vitamins found in supplements that you might already use to keep your muscles and joints in top shape.

“CBD seems to have a much greater antioxidant effect than vitamin C or vitamin D, so many athletes are using this to deal with inflammation,” he says. That makes it highly sought after by athletes looking to avoid other treatments like steroids, that have more significant side effects and varying levels of legality.

So to sum up, cannabis is getting massive demand from three high-growth areas:

  • Recreational users
  • Medical users
  • Exercise and health markets.

When you take this into account, those massive market estimates make a lot more sense. Although their unrealistically precise predictions still make me question them.

Still, it is clear the cannabis market is going to be massive.

Which brings us to the question I’m going to look at tomorrow in part II – is it just a bubble?

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Commodities

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