In terms of growth prospects, no industry is blazing a trail quite like legal marijuana. The newly released “State of the Legal Cannabis Markets” report from Arcview Market Research and BDS Analytics calls for more than $40 billion in global licensed-store revenue by 2024, up from just under $11 billion in 2018 (a compound annual growth rate of 24%). If these figures prove accurate, quite a few pot stocks should be rolling in the green, so to speak.
Even though the United States is viewed as the crown jewel of the cannabis movement, it’s Canada that’s led the way on the legalization front. In October, our neighbor to the north became the first industrialized country in the world, and only the second country worldwide behind Uruguay, to legalize recreational cannabis. Arcview and BDS foresee around $4.8 billion in yearly pot sales in Canada by 2024.
A cannabis leaf lying within the outline of the Canadian flag’s red maple leaf, with rolled joints and a cannabis bud to the left of the flag.
Image source: Getty Images.
Canada’s pot industry has faltered badly, thanks to Health Canada
While this might seem like the perfect recipe for success, the launch of legal weed hasn’t exactly been a budding success in Canada. In January and February, licensed cannabis store sales in Canada actually declined, with February sales coming in about 13% lower than where they were in December. That’s a head-scratcher given the popularity surrounding marijuana and the favorability the public has toward legalization.
This sales weakness can be boiled down to a combination of three problems.
First, growers were unwilling to spend $100 million-plus on capacity expansion projects until they knew for certain that the Cannabis Act would become law. That didn’t happen until late 2017/early 2018, which was less than a year before the official launch of adult-use marijuana. Nearly all growers are still in the process of building out their capacity, which has left supply far below actual domestic demand.
Second, most growers have also complained of compliant packaging shortages. Regulatory agency Health Canada laid out a series of guidelines that growers, processors, distributors, and retailers would need to follow if they wanted pot products to wind up on cannabis-store shelves. That’s led to a shortage of compliant packaging in the early going, which in turn has kept unfinished cannabis sitting on the sidelines.
But the biggest problem of all has arguably been the regulatory red tape associated with Health Canada. As the agency tasked with reviewing and approving or denying cultivation, processing, distribution, and sales license applications, Health Canada was working with a backlog of more than 800 applications in January.