According to RBC Capital Markets, Constellation Brands’ recent investment in Canopy Growth is “exactly the type of move that more companies should be making.”
The firm estimates that legal marijuana sales in the U.S. could reach as high as $47 billion in the next ten years.
According to RBC analyst Nik Modi, US marijuana sales are quickly catching up to those of beer and wine. Modi wrote, “In this US, the legal cannabis category is set to grow at a 17% CAGR over the next decade to as much as $47 billion in annual sales (this compares to the current diaper category at $4 billion in sales).”
“Driving the growth is recreational use of the product, particularly concentrates and edibles,” Modi added. “Estimates already suggest that the US category alone is $50 billion, which compares to spirits $58 billion, wine $65 billion, and beer $117 billion.” RBC’s $50 billion estimate includes illegal sales, and the amount of total sales they make up is unclear.
“We think this is exactly the type of move that more companies should be making (not in cannabis necessarily, but having the foresight to invest in future revenue streams, especially at a time when the core business is performing),” Modi explained.
“We believe that Constellation’s approach of sequentially increasing its stake in Canopy is a win-win approach, as it enables both parties to participate in CGC’s upside while allowing Constellation to simultaneously manage leverage levels.”
“We believe further US decriminalization of cannabis including for recreational use is very likely over time,” the firm wrote. “It ultimately starts with US voters who across demographics are supportive of cannabis legalization.”