Part of cannabis and investing
Cannabis sales in Colorado hit a monthly record of almost US$139-million in July, 4½ years after the drug was legalized for recreational use, but the bigger trend in the world’s most mature legal marijuana market is the rapid slowdown in growth.
As Canada prepares for legal recreational cannabis on Oct. 17, with governments and producers scrambling to be ready and investors pouring cash into cannabis stocks, Colorado offers a picture of how the market in Canada could unfold. Sales data from the state suggest there will be early bumps, followed by a boom, with a plateau several years after legalization.
The legal sale of recreational cannabis in Colorado began in January, 2014. Like the experience in jurisdictions that came after Colorado, such as Washington State, the legal market was slow to get going, but, by the end of the first year in Colorado, recreational cannabis had surpassed the long-standing medical marijuana market in the state, which has operated since the early 2000s.
Colorado’s total marijuana market soon began to boom. In 2015, sales jumped almost 50 per cent annually to US$996-million and then rose by about a third to US$1.31-billion in 2016. Growth slowed to 15 per cent in 2017 as US$1.51-billion of cannabis was sold.
This year, the growth rate is only 2.7 per cent through the first seven months of the year, compared with the same period last year, according to data from the Colorado Department of Revenue. July, with its record monthly sales, was up 1.6 per cent. Data for August, set to be issued this coming week, are expected to show similarly modest growth.
“All signs are it’s a mature market,” said Paul Seaborn, a professor at the University of Denver who teaches a Business of Marijuana course.
Mr. Seaborn sees typical signs of a mature market, such as consolidation among market players and a trend of discerning consumers who seek out specific brands.
While the market in 2018 is up slightly, the first year-over-year declines have emerged. May was down 0.5 per cent from a year earlier. The second quarter, April through June, recorded a decline of 0.2 per cent.
Prof. Seaborn said he can see the annual Colorado marijuana market ticking up to US$1.6-billion or US$1.7-billion but maybe not much more.
“Will it reach US$2-billion? It seems unlikely. We’re only a state of 5.6 million residents.”
The numbers in Colorado indicate that the transition to the legal from the illicit market is close to complete, said economist Adam Orens of the Marijuana Policy Group in Denver.
The next stage, said Mr. Orens, will look like other similar legal markets. He likened cannabis to beer, wine and spirits, where market dynamics are shaped by factors such as the strength of the economy and population gains. Growth, in general, is slow.
“We’ve moved from those early days when we were the subject of national curiosity and people travelled here to buy it,” Mr. Orens said. “Those days are over.”
Washington State has followed a similar pattern. After a slow start in in the second half of 2014, when legal sales began, the market took off. In 2016, US$1.11-billion of cannabis was sold, more than double the US$486-million of 2015, the first full year of legalization in the state. In 2017, the market rose another third to US$1.47-billion, according to 502data.com, which collates data on the Washington State cannabis industry.
In the first eight months of 2018, growth has slowed to 10 per cent compared with a year earlier, measured by excise taxes collected by the state. In the summer, growth slowed even more, rising only 5 per cent in July and August.
Statistics Canada estimates that the domestic Canadian cannabis market, illicit and medicinal, was $5.1-billion in 2017, down from a peak of $5.4-billion in 2014. The decline in value is attributed to lower prices as production has climbed.
Bullish forecasts suggest the figure could rise significantly. Deloitte LLP forecast the cannabis market in 2019 in Canada at $7.2-billion, of which legal sales would account for $4.3-billion. “Consumers will buy more frequently – and spend more,” Deloitte predicted.
Analyst Vivien Azer, of brokerage Cowen and Co. in New York, said that the Canadian cannabis market could reach an annual value of $12-billion by 2025, the seventh full year of legalization. Ms. Azer underpinned her forecast on Health Canada research that showed more users of cannabis than previous research had found.
In Colorado, however, legal cannabis remains a product that the large majority of people – more than 80 per cent – do not use. Research from the Marijuana Policy Group estimates about one million people in the state used cannabis in 2017, roughly one of six people. But it was frequent users who account for most of the demand: People who used cannabis at least every other day – about 340,000 people, 6 per cent of the state population – were responsible for 90 per cent of cannabis demand.
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David Ebner