New Frontier Data recently released an updated report on the state of the cannabis market, The U.S. Cannabis Report: 2018 Industry Outlook, which determines that the legal cannabis industry will continue experiencing rapid, sustained growth over the next few years. The organization, which is dedicated to cannabis industry business intelligence, projects several years of sustained double-digit compound annual growth rates (CAGR) for both the medical (11 percent) and recreational (18 percent) cannabis markets.
State-Level Cannabis Trends
Public support for cannabis legalization is a rapidly evolving American social issue. One of the biggest drivers of this growth trend is the state-level legalization of cannabis. Thirty states, including the District of Columbia (D.C.), legalized medical cannabis, while nine legalized recreational cannabis use over the past few years.
It all began with California in 1996, up to and including Vermont, the latest state to legalize cannabis. According to New Frontier Data, by 2025, more than a dozen states are expected to pass new cannabis laws, further fueling the projected growth. Holdouts Virginia, Utah, Missouri, and Texas are expected to pass medical cannabis laws finally. A handful of other states are expected to pass recreational marijuana laws, including the East Coast states of Connecticut, Rhode Island, New Jersey, New York and New Hampshire. Joining these states are Michigan, Montana, Ohio and New Mexico.
Eight states legalized some form of cannabis during the 2016 election, and nearly all have enacted sales. Already in 2018, over two million patients are being treated with legal medical cannabis, the large majority suffering from chronic pain. The report is quick to point out that cannabis legalization in any form generates tax dollars and jobs.
By 2020, several states will have large markets for legal cannabis: California, Colorado, Florida, Massachusetts, Michigan, Oregon, and Washington. The medical markets in Florida and Michigan will be as big as the recreational cannabis markets in Oregon and Massachusetts. Washington is expected to be the largest recreational marijuana market until 2020, which will then will be overtaken by California.
Altogether, these various factors add up to a $30 billion U.S. cannabis market. The cannabis industry will touch many other sectors as well, including everything from agriculture to animal health.
The CBD Market
The CBD market has experienced continued growth as well which is expected to go well into the future. In 2017, both the hemp- and cannabis-derived CBD markets grew nearly 40 percent and reached $367 million in U.S. sales. New Frontier Data projects the CBD market to more than triple by 2020, reaching $1.2 billion, then nearly double to $2 billion by 2022.
Pharmaceutical companies are entering the cannabis sector, particularly after the FDA’s approval of GW Pharmaceuticals’ Epidiolex CBD-based epilepsy drug in June 2018. Until now, the government’s classiﬁcation of cannabis as a Schedule I controlled substance has kept many pharmaceutical companies at bay, due to the restrictions on conducting clinical trials. Sales of Epidiolex are projected to be $180 million for 2019.
Moreover, companies such as Cara Therapeutics, Inc. (NASDAQ:CARA) and Zynerba Pharmaceuticals (NASDAQ:ZYNE) have cannabis drugs in the pipeline as well.
The federal government began easing restrictions on hemp cultivation, increasing CBD production. Senator Mitch McConnell (R-Kentucky) wants the U.S. hemp industry to be fully legal at the federal level and has proposed the measure as part of the 2018 Farm Bill. Of the $820 million hemp industry in 2017, about 25 percent of it, or $190 million, involved hemp-derived CBD products.
Non-Flower Product Demand
Non-flower products like edibles, oils, concentrates, infused beverages and more are in high demand because they are discreet and easy to use. The product diversity gives the consumer more control over how they ingest cannabis.
In fact, in some markets like Colorado and Washington, the demand for these higher value products comprises more than half of all sales revenues. Retailers make higher margins than on flowered product, and many states are trending to allow these newer products to be sold. Just a few short years ago, flower product dominated sales, but since 2014, non-flower products have closed that gap.
Many countries legalized cannabis in some form this past year, with Europe, Israel, and Australia establishing medical markets and promoting scientific research. Canada legalized recreational cannabis nationwide, effective October 2018, with provinces responsible for specific implementation. The result is a skyrocketing Canadian cannabis industry that accounted for almost half of the total global investment in the cannabis space in 2018.
Compared to Canada, Europe has been much more restrictive by establishing a pharmaceutical-style market whereby patients with a prescription can obtain medical cannabis products. Some European countries like Germany have moved to looser regulations in the medical market. German patients can more easily qualify, but since domestic cultivation is banned, Germany relies on cannabis imports from countries like Canada to meet their domestic demand.
Many South America countries are changing their laws, and international companies are looking to it as the next great continental market. Uruguay has the distinction of becoming the ﬁrst country to legalize recreational cannabis use. Peru, Colombia, and Chile are following that lead.