3 Million Reasons To Anticipate Phase 2 Cannabis Legalization

Canada’s cannabis industry has already turned the corner. The industry has recorded three consecutive months of double-digit sales growth.

That growth rate would already be expected to accelerate going forward. This is simply from the increasing rate of new licenses being awarded for retail cannabis stores.

With cannabis valuations currently in a deep trough, cannabis investors are already anticipating a strong fall season for cannabis stocks – as valuations catch up to rapidly rising demand (and revenues).

So why should cannabis investors be getting even more excited about the revenue potential as Phase 2 of cannabis legalization arrives in Canada (October 2019)? There are 3 million reasons.

In Phase 2, cannabis concentrates and edibles (and other infused products) become legal in Canada. A recent survey conducted by EY Canada and Lift & Co (CAN: LIFT / US:LFCOF) indicates that as many as 3 million new consumers will begin to purchase cannabis products in Canada when these products reach store shelves (estimated for mid-December).

This number translates into 12% of all (adult) non-consumers in Canada. To put this into context, currently roughly 17% of Canadian adults consume legal cannabis. That means, the total number of adult cannabis consumers will increase by as much as 40% from current levels.

Cannabis sales are currently rising rapidly and 40% more consumers are anticipated to enter this market in the near term. Ka-ching!

However, that’s not the only reason why cannabis investors should look at Phase 2 legalization as another turning point in the Canadian cannabis market. As noted in a Seed Investor article from earlier this week, female Canadians have a much greater interest in the new cannabis products that will be coming to market in Phase 2.

Canadian women (23%) are almost twice as likely as Canadian men (12%) to consume only these value-added products: concentrates and edibles. In addition, women are nearly three times as likely as men (14% to 5%) to purchase cannabis products delivered topically or sub-lingually (under the tongue).

In other words, when approximately 3 million new Canadian adults enter the cannabis market after Phase 2, a majority of those consumers will likely be female. This will help to significantly close the gap between male cannabis consumption versus female consumption.

Canadian males were nearly twice as likely to have consumed cannabis in the first half of 2019 (21% to 12%). And nearly 60% of Canadian women still report having never tried cannabis.

Phase 2 legalization will begin to unlock this huge consumer demographic. The 3 million new consumers anticipated after these new cannabis products come to market are only the beginning.

In Colorado, the most mature (and most lucrative) cannabis market, the state has set new sales records in three of the last four months. The more exposure that people get to legal cannabis, the more they like it.

Of equal importance, the CAGR for value-added cannabis products in the U.S. greatly exceeds the expected growth rate for (basic) dried flower products from now through 2022.
 

• 20% for dried flower
• 33% for cannabis edibles
• 41% for vapes and other concentrate products

Phase 2 legalization will be a major near-term event for the Canadian cannabis industry. The long-term impact on the Canadian cannabis industry will be even more robust.