With the recent legalization of recreational marijuana in Canada, the industry has been receiving significant attention. As with any startup company in a new, growing market, inherent risks exist. An increasing number of competitors and changing regulations make it difficult to predict who will be the ultimate winners and losers.
Canada's Marijuana Market Is Estimated to Be Smaller Than Alcohol, Tobacco and Prescription Drugs
*Medical in 2016, Medical & Recreational in 2021 Sources: University of Waterloo, Health Canada, Edward Jones Estimates
Medical Medical Market is Relatively Small - Over the last year, sales for medical marijuana in Canada totaled over C$300 million1,2. In comparison, over C$25 billion is spent on prescription drugs a year1. While access for medical use is legal, marijuana has not actually been approved as a therapeutic product by Health Canada, like traditional prescription drugs1. We prefer investors get exposure to innovation through biopharmaceutical companies that are diversified, have extensive operating history and experience bringing drugs to market.
Recreational Market Has Low Barriers to Entry and Many Uncertainties - While the recreational market is expected to be larger than the medical market, significant uncertainties exist. As with most new, growing markets, we believe the excitement over the marijuana industry will eventually fade. Given the low barriers to entry, we expect competition to increase, and with the rapidly changing market dynamics and regulatory scrutiny, it is difficult to assess who the handful of winners and many losers will be. Beyond market dynamics, we believe it is difficult to predict how and where buyers will choose to consume recreational marijuana. In the food & beverages or tobacco subsectors, we prefer companies with strong brands, larger markets and a proven track record.
Limited Operating History - Companies involved in the marijuana industry in Canada have a limited operating history. In addition, the smaller size of these companies and uncertainties related to this new market have led to greater price movements of the individual marijuana stocks relative to the overall market. We would consider any investment in the marijuana industry to be speculative.
Sources: 1. Health Canada | 2. Public Safety Canada