Right now, few industries offer greater long-term growth potential than the legal marijuana industry. On Wall Street, peak sales projections for the cannabis industry have come in as high as $166 billion. The analyst behind this lofty forecast, Bank of America's Christopher Carey, also suggests that marijuana could disrupt industries that today combine for $2.6 trillion in annual sales.
It's these estimates for rapid sales growth that have pushed cannabis stock valuation (at times) into the stratosphere. With tens of billions of dollars' worth being sold annually in the black market, worldwide weed legalizations could easily move a majority of these sales to legal channels in the years to come. If that's the case, even the loftiest sales projections from Wall Street over the next 5 or 10 years may be attainable.
Global legal cannabis sales growth to average 24% through 2024, report shows
Wall Street's sales projections rarely provide much insight on how they arrive at their lofty future sales figures. But that's not the case with the 350-plus-page "State of the Legal Cannabis Markets" report released on Thursday, June 20, by the duo of Arcview Market Research and BDS Analytics. The new report details every nook, cranny, and bud, or where growth will be sprouting through 2024 in the legal cannabis industry.
The headline figure that I'm sure everyone wants to know is what total worldwide sales will look like by the time 2024 rolls around. According to actual legal pot sales figures from Arcview Market Research and BDS Analytics between 2014 and 2018 and estimates between 2019 and 2024, here's how things shake out:
- 2014: $3.4 billion
- 2015: $4.8 billion
- 2016: $6.7 billion
- 2017: $9.1 billion
- 2018: $10.9 billion
- 2019: $14.9 billion
- 2020: $19.3 billion
- 2021: $24.4 billion
- 2022: $30.7 billion
- 2023: $36.2 billion
- 2024: $40.6 billion
For those of you keeping score at home, this works out to a compound annual growth rate of 28.2% over a decade and 24.5% over the six-year period between the end of 2018 and the end of 2024.
North America is the key to the marijuana industry's skyrocketing sales forecast
You'll note that growth tapered off significantly in 2018 as regulatory issues and supply chain problems wreaked havoc in California, as well as in Canada in the early stages of its recreational legalization process. However, based on the report's forecast, many of these supply issues will resolve themselves shortly, leading to a rapid rise in legal sales.
Arcview and BDS Analytics also offer year-by-year breakdowns of global medical and recreational sales. After adult-use revenue hit $6.1 billion in 2018, to go along with $4.8 billion in medical marijuana sales, the duo will be looking for recreational revenue to expand to $26.7 billion by 2024, with an accompanying $13.9 billion in medical weed sales. Over this six-year period, recreational pot sales growth will handily outpace medical weed growth, since medical patients in recreationally legal countries or states will simply bypass a costly doctor's visit to purchase legal cannabis.
Additionally, we should see the bulk of this $40.6 billion in sales generated in North America. Even though spending outside of North America (i.e., Europe, Latin America, Asia Pacific, and the rest of the world) will skyrocket from $517 million in 2018 to an estimated $5.4 billion by 2024, Canada's nearly $4.8 billion in sales and the United States' nearly $30 billion in sales will account for the bulk of global cannabis revenue in 2024.
The most important cannabis growth chart you'll ever see
While these are all exciting figures and speak to the amazing growth potential of the legal pot industry, they still don't divulge what I believe to be the most important data set of the "State of the Legal Cannabis Markets" report -- namely, the breakdown of $44.8 billion in projected cannabinoid-based spending in the U.S. in 2024. This figure is higher than the aforementioned global sales figure because it also includes general retail sales and pharmaceutical cannabinoid revenue.
The following chart breaks down just how drastically the U.S. pot industry is expected to change between 2018 and 2024.
First of all, you'll note that sales of tetrahydrocannabinol (THC)-containing products in licensed U.S. dispensaries will almost triple from $8.6 billion in 2018 to $24.7 billion in 2024. THC is the psychoactive cannabinoid that gets users high. Although we've been hearing a lot about cannabidiol (CBD), the nonpsychoactive cannabinoid that's best known for its perceived medical benefit, it's important to recognize that an estimated 55% of 2024 sales will still be based on buzzy THC products.
Mind you, this doesn't mean that this $24.7 billion in sales will primarily be dried cannabis flower. New-generation pot users have made it very clear that they prefer to consume THC via derivatives rather than by smoking dried flower. Derivative products include oils, capsules, topicals, sprays, concentrates, vapes, edibles, and infused beverages.
This push toward derivatives is a big reason why Canadian grower HEXO (HEXO -3.95%) recently signed a two-year extraction agreement with Valens GroWorks for an aggregate of at least 80,000 kilos of hemp and cannabis biomass. Already partnered with Molson Coors Brewing to create a line of nonalcoholic cannabis-infused beverages in Canada, HEXO aims to broaden its product portfolio to include a number of alternative consumption options. HEXO also recently created a U.S. subsidiary that'll provide CBD-infused products via hemp extraction in eight states.
Maybe the biggest surprise is just how quickly general retail stores are expected to become major cannabinoid players for non-THC products (i.e., CBD oils, topicals, capsules, and so on). After generating a mere $0.6 billion in sales in 2018, general retailers should see $12.6 billion in non-THC product sales by 2024 in the United States.
Much of this CBD growth boom follows the passage of the farm bill in December. This bill legalized the industrial production of hemp and hemp-derived CBD throughout the United States. As a result, major CBD players, such as Charlotte's Web (CWBHF 1.02%) and CV Sciences (CVSI 16.28%), have seen their retail presence soar. Charlotte's Web's retail door count rose from 3,680 at the end of December to more than 6,000 by the end of March, whereas CV Sciences' retail door count has more than doubled in 5.5 months (through June 12) to almost 4,600 stores. Not surprisingly, Charlotte's Web and CV Sciences are two of a very small handful of pot stocks to be profitable on a recurring basis, and they should remain profitable if these forecasted growth figures are accurate.
Lastly, Arcview and BDS Analytics foresee pharmaceutical-based cannabinoid sales shooting from $0.1 billion in 2018 to approximately $2.2 billion by 2024. Cannabinoid-based drug developers like GW Pharmaceuticals (GWPH) will play a major role in this growth. GW Pharmaceuticals' lead drug Epidiolex became the first cannabis-derived drug to gain Food and Drug Administration approval in June 2018. Wall Street is looking for GW Pharmaceuticals' key drug, designed to treat two rare forms of childhood-onset epilepsy, to potentially generate more than $1 billion in sales by 2023.
The key takeaways here are:
- Licensed dispensaries and THC-focused products will remain important, so don't forget about them; and
- General retailers and ancillary players are the likely beneficiaries of the rise of CBD.
The more you know, the better you'll be able to take advantage of this potentially once-in-a-generation growth opportunity known as the legal cannabis industry.