The cannabis industry’s rapid growth is not expected to slow down any time soon–at least according to a new analysis by RBC Capital Markets.
“The legal cannabis category [in the U.S.] is set to grow at a 17% CAGR over the next decade to as much as $47 billion in annual sales (this compares to the current diaper category at $4 billion in sales),” RBC Capital Markets analyst Nik Modi wrote in a message to clients this week.
The current and projected growth is largely due to new legal markets coming online as well as the growth in popularity of edibles and concentrates. Cannabis flower has been decreasing in popularity as consumers are seeking subtle and perhaps healthier methods of ingestion.
The cannabis industry is already a serious competitor to alcohol sales.
“Estimates already suggest that the US category alone (for cannabis) is $50 billion, which compares to spirits $58 billion, wine $65 billion, and beer $117 billion.”
RBC was also impressed with a recent investment by Constellation Brands, the makers of Corona and Model beers. Last week, Constellation Brands announced that it would be investing 4 $billion into Canopy Growth, a cannabis producer.
“We think this is exactly the type of move that more companies should be making (not in cannabis necessarily, but having the foresight to invest in future revenue streams, especially at a time when the core business is performing),” Modi said.
“We believe that Constellation’s approach of sequentially increasing its stake in Canopy is a win-win approach, as it enables both parties to participate in CGC’s upside while allowing Constellation to simultaneously manage leverage levels.”
Since the announcement, shares of Canopy have risen sharply, more than 38 percent.
While cannabis is still illegal on the federal level, RBC feels confident in the future, especially since the vast majority of Americans support some form of legalization.
“We believe further US decriminalization of cannabis including for recreational use is very likely over time,” the bank said. “It ultimately starts with US voters who across demographics are supportive of cannabis legalization.”