Investment firm Edward Jones released a report on Dec. 20 that highlights their very conservative outlook for the Canadian marijuana sector, despite increased enthusiasm as a result of pending legalization and enormous gains for cannabis stocks in 2017.
The Edward Jones report states that although marijuana is currently all the rage, risks exist for “any startup company in a new, growing market.” The review added that because of an increasing number of competitors and changing regulations, it’s challenging to determine the eventual dominant players in the burgeoning industry.
While other investment firms including Merrill Lynch have been all-in when it comes to investing in pot, Edward Jones seemingly downplayed the industry by claiming Canada’s medical marijuana market is “relatively small.” The Edward Jones report stated that medical cannabis sales in 2017 were hovering over $300 million, while the total prescription drug market reached $25 billion.
This comparison failed to highlight the fact that access to medical cannabis is still relatively difficult, but will improve as more licensed producers enter the mix. Further, the report neglected to mention the inevitable growth in marijuana sales as past stigmas toward the substance are erased and more medical applications are revealed.
As for the upcoming recreational market, Edward Jones saw uncertainty, stating they believe the excitement over the marijuana industry will eventually fade. The firm expects competition to increase alongside “rapidly changing market dynamics and regulatory scrutiny.” A further portion of the document cited problems in determining consumer behavior. “Beyond market dynamics, we do not know where and how buyers will choose to consume recreational marijuana,” the report said.
This significantly conservative outlook on behalf of Edward Jones comes on the heels of an announcement made by Statistics Canada, which stated that Canadians consumed up to $6.2 billion worth of cannabis in 2015. That amount is the equivalent of approximately 697.5 metric tons of pot.
The Statistics Canada numbers were on par with an estimate made by Deloitte in 2016, predicting the Canadian cannabis industry is expected to tally up to $8.7 billion in cannabis sales annually. The same report added that if ancillary products such as lighting, security systems, and testing labs are included, that number could reach $22.6 billion annually.
credit:marijuana.com