Estimating this is akin to predicting anything about the current POTUS. Too many degrees of freedom, as the statisticians say. Too many moving parts, as the rest of us say.
We recently looked at the cannabis market in the Canadian context (see: THE CANNABIS CRAZE). But this context leads one to overstate the global market. Canada’s unique position is that it is currently home to the world’s biggest legal producers of cannabis because it is (only) the second country to legalise it. So the legal cannabis market is more important in Canada than it is, or ever will be, in the global context.
What caught our attention on this topic is Constellation Brands’ recent $5B (CAD) minority-stake investment in Canopy Growth [1]. Constellation is one of the world’s huge beverage alcohol brand aggregators. Compared to major competitors (Beam Suntory, Brown Forman, Diageo, etc), they look to be over-exposed to the declining high-volume beer category. For more on this, see sidebar.
Bill Newlands is COO of Constellation Brands and is featured in the Globe & Mail article that was the genesis of this post. He also made a very well-researched, highly-detailed presentation to shareholders and his industry at large to justify the Canopy Growth investment in September, 2018 (available here as a 5.4 MB PDF). Of particular interest is predicted gross and operating margins for Canopy Growth—significantly higher than those for beverage alcohol.
This is the kind of thing you do when you’ve made a big bet for your company, your stock price goes down and hard questions are being asked.
The Guess Range
$200B by 2032 (Bain & Company, 2017)
$500B, eventually (Piper Jaffray, 2018)
The Context
The global beverage alcohol market is currently $1.32 trillion and is estimated to be $2.35 trillion by 2032 [2], which is 9% of the predicted cannabis market (Bain’s lower range estimate).
The Rub
Cannabis market size estimates all depend on the pace of legalisation in countries beyond Uruguay and Canada. This is inherently unpredictable.
Also, the experts seem to be assuming that legal cannabis consumption will be incremental consumption. It won’t be. The initial disruption will be in the illegal cannabis market as demand shifts to legal suppliers. This will not change beverage alcohol purchase—or for any other category—in the short to medium term.
The Summary
The legal cannabis market will be significant but it’s very hard to predict. Let’s watch, learn and act appropriately for our stakeholders, shall we?
- All dollar amounts are USD unless otherwise noted.
- Marina Strauss, “Beer to bud: Inside alcohol giant Constellation’s big gamble on pot”, The Globe and Mail, January 26, 2019.
- Stratistics MRC, July 18, 2018.
