BMO Report: Cannabis cultivators will be competing in a $194 billion market within seven years

Bethan Rose Jenkins, Cannabis News Writer/Editorial

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A new report from the Bank of Montreal (BMO) has shone a light on the profitability of global weed. So promising is the outlook, that the sky-high valuations we currently see for major Canadian cannabis players like Tilray, valued at $20 billion, will seem surprisingly cheap in the near future.

Cannabis industry analysts Tamy Chen and Peter Sklar investigated the prospective future size of the target market for Canadian cannabis producers. In the BMO report, they both concluded that the market could be worth $194 billion within seven years. Well, that’s if weed becomes legal in every U.S. state and all of Europe for both medical and recreational use.

The analysts also based their predictions on Latin American countries that have passed laws permitting medical cannabis consumption. Their colossal figure is much more than the revenue forecast for Canada’s medical and recreational markets of $5.9 billion.

Canadian cannabis stocks impacted by Cannabis Act

Although weed is fully legal in the Great White North, Canadian cannabis stocks have been shaken up by the passing of Bill C-55. Investors are now reconsidering the stability of Canadian cannabis stocks, which have likely been dented due to product shortages and supply issues. 

For example, since Canada’s cannabis legalization rolled out on October 17, The Horizons Marijuana Life Sciences ETF valuation shrunk by $500 million.

“We believe current valuations for Canadian LPs are elevated when only the Canadian cannabis opportunity is considered,” wrote the cannabis industry analysts.

Canada stands to benefit from overseas deals

Canada’s cannabis sector could reap some serious gains if overseas investment opportunities are snapped up, say the industry analysts. Take Germany for example. Based on the predictions from Chen and Sklar, Germany’s medical cannabis market has the potential to harvest $5 billion in annual revenue for global cannabis cultivators.

The European country, which is home to more than 80 million people, has already caught the attention of Canadian producers Aurora Cannabis and Canopy Growth Corp. Both companies have begun exporting bud to Germany.

“Although prices are currently higher, we are projecting that in seven years, more supply will reduce the average wholesale prices to seven euros per gram,” explained the analysts.

Analysts see money-making potential in Europe’s cannabis market

Also included in the BMO report is a total addressable market estimate, based on a hypothetical situation in which all 28 countries belonging to the European Union legalize medical cannabis. If this happened, Chen and Sklar say the revenue would top $30 billion within seven years. Moreover, they predict that this figure would climb by an additional $68 billion if recreational cannabis is legalized throughout the EU.

Investors shouldn’t get too excited just yet, however. Cannabis is still illegal in the vast majority of EU countries. The same cannot be said for the U.S., which the analysts project will pull in $19 billion in potential revenue from the medical cannabis sector and an impressive $49 billion from the recreational cannabis sector.

BMO report figures are mere estimates

Albeit intriguing, the estimates from the BMO report of “total addressable market” and “total potential revenue” are not completely factual. They are estimates and so, it’s not absolutely certain how Canadian LPs stand to benefit from cannabis stocks in the future. Nonetheless, the analysts have carefully based their assumptions on the likelihood of prescription drugs being replaced with medical cannabis over the next seven years.

“Our market share assumptions for international markets are lower than Canada as we believe Canadian LPs are likely to face competition from other Canadian LPs and international players.”