Cannabis Market Could Hit $272 Billion by 2028 as Canada Prepares Recreational Legalization

The cannabis industry could be worth $272 billion by 2028 as Canada becomes the first Group of Seven country to legalize the drug for adult recreational use next month and steps are being taken elsewhere to loosen restrictions, according to Barclays.

The current cannabis market is worth $150 billion globally, although that’s “largely illicit,” according to Barclays. It compares with the scope of the global tobacco market excluding China at $750 billion and the beer market at $660 billion.

Still, the legal market opportunity today is only $40 billion, meaning “future legalization in additional geographies is required for this market to grow in relevance for investors,” Barclays analysts wrote.

With Canada’s widespread legalization set to take effect on Oct. 17, companies there have been heavily investing in the cannabis sector, raising more than $15 billion in risk capital over the last four years, Barclays said.

Companies like Toronto-based Cronos (CRON), Smiths Falls, Ontario’s Canopy Growth (CGC) and Tillray (TLRY), which is headquartered in Nanaimo, British Columbia, have seen their shares surge in recent months as they announced new deals and headed closer to the legalization date.

“Canadian companies have taken a lead,” Barclays said. “They have ambitions to develop new products — medicines, beverages, personal care etc. — to extend cannabis use cases.”

But Barclays said there are risks to be monitored including market size projections for both the legal and illegal markets because depending on how cannabis is taxed, a “sizeable illegal market might continue to exist.” Also, cannabis grows in the wild in tropical geographies and Canada doesn’t have the “natural geography” to grow the weed. And demand forecasting errors can lead to inventory and price swings.

Canopy Growth last month got a $3.8 billion investment from alcoholic drinks maker Constellation Brands (STZ). Barclays said the beverage industry could face disruptive risks, including in cannabis-infused drinks that could create a new product category challenging alcohol.

“Somewhat surprisingly, the tobacco industry is not witnessing disruption yet — none of the cannabis companies want to sell joints,” Barclays said.