Cannabis companies are poised to see sales grow by nearly nine times through 2030 as legalization gains popularity and distribution widens, according to Morningstar’s latest research.
The U.S. recreational, U.S. medicinal, Canadian, and global medicinal export markets have penetrated just 8%, 21%, 11%, and 19% of their estimated markets, respectively. We believe this large, underserved market will provide top-line growth and fixed-cost leverage for cannabis companies, supporting a “green rush” through at least the next decade.
These findings are among the key takeaways detailed in our Basic Materials Observer on cannabis market growth. The full report provides a playbook for investors seeking exposure to different cannabis trends, as well as market-size forecasts and regulatory outlooks for major cannabis markets.
Below, explore some of our findings about the current state and future expectations of the cannabis industry in the U.S., Canada, and international markets.
The U.S. cannabis market outlook: massive recreational and medical cannabis market growth
- The recreational cannabis market is larger than the medical market both at its current size and long-term estimate. The current market estimate of the legal recreational market is about $5.4 billion, primarily dominated by the western U.S., where recreational legalization is more common and distribution more developed. As shown on the chart below, we estimate the market will become nearly 13 times larger by 2030, at roughly $68 billion in constant dollars (representing about 25% average annual growth).
We Forecast a 2030 Market for Recreational Cannabis Nearly 13 Times the Size of Today Constant Dollars in Millions
Source: 2018 Marijuana Business Factbook and Morningstar.
- Legalization is expected to expand at both the state and federal levels. Laws differ greatly from state to state. As shown on the chart below, as of May 2019, 23 states have legalized medical cannabis, 12 states have legalized low-THC/high-CBD hemp or cannabis derivatives, and 11 states and Washington, D.C., have passed laws legalizing both recreational and medical cannabis.
Further Legalization and Commercial Distribution Across 9 States Will Drive More Growth in the U.S.
Source: National Conference of State Legislatures. http://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx#3 (accessed April 2019). Morningstar.
- By 2030, we expect legalization to take effect in nine more states. Six states are expected to legalize recreational cannabis (Connecticut, New Hampshire, New Jersey, New Mexico, New York, and Rhode Island). Three states have already passed legalization (Michigan, Vermont, and Illinois), and implementation is ongoing. Commercial operations are expected to expand in the next decade as these programs are applied.
- The federal government may be legally prevented from interfering in cannabis operations and consumers operating within a state’s laws. We contend that this is the most likely resolution to the federal and state legal discrepancy. This would mean states that legalize or have already legalized cannabis will not be inhibited from doing so. However, it would also mean states that have showed staunch opposition to legalization would be able to continue to prohibit it.
- Robust recreational growth doesn’t rely on significant participation expansion. Our forecast (shown on the chart below) implies that cannabis won’t surpass alcohol in participation rates but may modestly exceed today’s participation rates for tobacco. In other words, tremendous market growth doesn’t need to come from converting nonconsumers, just from converting existing black-market customers to the legal market.
Our Recreational Forecast Implies That Cannabis Will Not Surpass Alcohol ’ s Popularity
Source: Substance Abuse and Mental Health Services Administration, CDC, and Morningstar.
The Canadian cannabis market outlook: forecasted to be 9 times larger in 2030 than it is today
Unlike the confusing U.S. cannabis laws, Canada’s laws are very clear: Recreational cannabis was legalized in June 2018 when Canada’s House of Commons and the Senate approved Bill C-45 (the Cannabis Act). The law took effect in October 2018, making Canada the second country after Uruguay to fully legalize cannabis for adult use.
Canada’s current market penetration is at just 12% of the market, shown below. This leaves a significant runway for growth and underpins our forecast that cannabis sales will grow nearly 20% per year on average.
Recent Legalization Can Expand the Canadian Market by More Than 9 Times by 2030
Source: State of the Legal Marijuana Market by Arcview Market Research and BDS Analytics (cited by Digital Journal) and Morningstar.
The international cannabis market outlook: Medical growth is expected, but competitors are emerging
- Increasing interest in medical cannabis may create further demand. Internationally, a growing number of countries have recognized the benefits of medical cannabis and are expanding access. This widening legalization is expected to create further demand. Still, the global market (excluding the U.S. and Canada) remains severely underpenetrated, leaving room for it to expand to more than 11 times its current size.
- We forecast total-market potential of nearly $43 billion by 2030 with the addressable market at $20 billion. This forecast is a substantial increase from the current global medicinal cannabis market (excluding the U.S. and Canada), which we size at roughly $3.7 billion based on estimates ranging from $3.5 billion to $11 billion from Coherent Market Insights and Research and Markets, as shown on the chart below. More than half of the market potential over the next decade lies in countries that will expand their own cannabis production, limiting the opportunity for exporters.
Significant Opportunity in the Global Medicinal Market, but Increased Competition Limits Updside
Source: Current market estimate based on Coherent Market Insights (as cited by MarketWatch), ResearchAndMarket.com (as cited by GlobeNewswire). Forecast from Morningstar.