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Bank of America Merrill Lynch has deepened its interest in the cannabis industry by launching a booming industry coverage, less than a year after funding Constellation's multi-billion dollar investment in Canopy Growth Canada.
The report by analyst Chris Carey predicts that two events could lead to a paradigm shift:
- Canada will reach the excess supply of marijuana by 2021, which will reduce prices and accelerate consolidation.
- American legalization.
"Importantly, whether legalization takes place or not, we believe that the prospect of legalization, an event that could drive up US asset prices, is prompting Canadian companies to accelerate their strategies and see announcements of corporate actions. in the United States before legalization, "says the report.
The call was made the day before Canopy Growth signed a landmark deal to acquire New York-based Acreage Holdings for $ 3.4 billion – pending legalization in the United States. United.
Canadian companies listed on the Toronto Stock Exchange can now enter the United States through ownership structures that become active only when US federal law has been amended.
If the United States legalized cannabis for medical purposes at the federal level, it would be more difficult to justify the high prices of "Canadian-only" coins.
"The international strategy is now critical"
According to the report, the combined market share of the 14 largest Canadian producers could exceed domestic consumption by mid-2021, and international strategies are now essential because the Canadian market is small relative to global opportunities.
"We have more than 50 Canadian producers licensed to sell cannabis, far too much for a cannabis market the size of the Canadian market," the report said.
Bank of America Merrill Lynch, based in Charlotte, North Carolina, estimates that a "global industry emerging from the shadow of $ 166 billion" – the United States accounting for 34% of the total global market of addressable cannabis.
Europe follows at 25%, with Asia (21%), Africa (9%), Latin America (6%) and Oceania (2% ). The total addressable market includes both regulated and illicit markets.
Canada represents only 3% of this market, the main engine of companies in this country in search of international growth.
"We expect the illicit market to lose its share of the legal market in North America, but the rest of the world will remain dominated by an illicit market," said Carey.
This potential disruption could have even greater potential.
"We estimate consumer categories generating $ 2.6 trillion a year in revenue could be disrupted by cannabis, from health / well-being to alcohol," the report says.
Global developments
The report called the approval of Epidiolex by the US Food and Drug Administration "an important step" in the legalization of medical cannabis.
"A second critical development for the medical cannabis sector is happening globally," Carey wrote.
He cited the decision taken in January by the World Health Organization to recommend the rescheduling of cannabis, removing it from Annex IV of the 1961 Convention on Drug Control and placing it in a category much less restrictive.
Carey noted that a third critical development took place in February when the European Parliament called for a uniform definition of medical cannabis.
Bank of America Merrill Lynch has initiated coverage of industry leaders, Aurora Cannabis, Canopy Growth, Cronos Group, The Green Organic Dutchman, Hexo Corp. and Supreme Cannabis.
Matt Lamers can be reached at [email protected]
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