The Growth of the Cannabis Industry

Over the past decade, cannabis distribution in North America has evolved from a criminal offense to – well, still a criminal offense – but also a billion dollar legal industry. The lines are often blurred as the cannabis industry undergoes a major regulatory and legal overhaul. As an emerging industry, we have seen, and will continue to see, an increasing number of opportunities for the development and growth of cannabis companies in both Canada and the United States. The development of cannabis in the areas of life sciences and medicine has been accompanied by an expansion of the recreational market.

In the United States, legal cannabis sales totaled $5.7 billion in 2015, and are expected to reach $7.1 billion in 2016, with approximately 70% of sales for medical use and 30% for recreational use.1  Canada’s collective cannabis industry is projected to grow to $2.5 billion by 2020, assuming full legalization occurs.2  Accordingly, the stigma surrounding cannabis has continued to shrink, whereas investment and opportunity in the industry have continued to grow.

On the other hand, industry growth of cannabis in North America continues to be impacted by legal, banking, social, logistical, and regulatory issues. For example, some Canadian banks have reportedly stopped providing certain services to marijuana-related businesses or companies engaged in the production and distribution of marijuana.3  Accordingly, it remains important for growing cannabis companies to have the resources and human capital required to overcome regulatory and legal issues, various challenges related to financings, and the development of strategic partners in a range of areas including extraction, dispensary operations, distribution, and commercial cultivation. The industry has market share that is available for companies with long-term strategic vision, knowledgeable and capable advisory teams, as well as strong market and brand awareness. However, these companies must be aware of the risks and uncertainties associated with the industry today. There are challenges for both start-ups and established companies involved in cannabis, as the industry continues to grow and change with both market demands and a shifting regulatory and legal landscape, in both Canada and the United States.

Interestingly, the growth of the cannabis industry has featured a diverse offering of brands and products for recreational, medicinal, and other purposes. If there is a consumer need for these products - and it appears that there is - cannabis has the potential to become a multifaceted, dynamic, and unique industry. Cannabis products include topical creams, animal food and health products, transdermal patches, lip balms, medication tablets, moisturizing lotions, intimacy oils, sublingual sprays, salves, inhalers, as well as face and eye creams. Accordingly, the potential for cannabis appears to be greater than just as an intoxicant or psychoactive substance. Cannabis products from various market segments are branded, advertised, and sold independently, to help develop and sell merchandise effectively from these different verticals. Looking forward beyond recreational use, cannabis has the potential to increase its presence in the pharmacology, personal care, and consumer product industries.

Stay tuned for more developments in this exciting area!

This article was written with the helpful contribution of Michael Garbuz (Articling Student).

                                                                              

1 State of Legal Marijuana Markets, 4th edition, pg. 11.
2 Andrew Uddin and Neal Gilmer, "Growth opportunities in the Canadian marijuana market" (April 12, 2016), The Globe and Mail, online.
3 Alexandra Posadzki, "Two of Canada's Big Six banks backing away from marijuana industry" (September 11, 2016), The Globe and Mail, online.