Canada has just legalized the pot. Who could benefit?

Recreational marijuana in Canada became legal Wednesday, opening a new multi-billion dollar cannabis market for businesses and investors.

This decision is likely to have significant economic consequences for the global cannabis industry as companies claim a share of sales and experiences in what is only the second-largest country in the world to legalize marijuana for recreational purposes.

Uruguay has legalized cannabis all over the country last year, but it is a much smaller investment market than Canada. According to the World Bank, Uruguay has only 3.4 million inhabitants and its national gross domestic product is $ 56.2 billion, while Canada has 36 million and its GDP of $ 1.7 trillion. dollars.

"Many countries will look to Canada and their ability to make it a success," said Colin Busby, Director of Research at the Canadian Institute for Research on Public Policy. "There will always be an economic incentive for governments to get involved, given the size of the market."

This economic incentive for businesses and the government will take the form of income, employment and taxes, including income taxes, sales taxes and excise taxes.

However, many investment analysts warn of overcrowding in market potential, saying Canada's economy is still relatively small compared to countries like the United States, where 30 states have legalized marijuana for and nine others, plus the District of Columbia, have legalized its use for recreational purposes. And they say that strict regulations in Canada and the United States are likely to limit the growth of the market for years to come.

Here's what the experts say about the marijuana market in Canada and elsewhere.

What does the new law do?

Canadians aged 18 and over are now permitted to publicly own up to 30 grams of legal cannabis and can purchase this dried cannabis, fresh or in the form of oil from an authorized retailer. Beyond that, much of the regulation varies, because every Canadian province is responsible for how cannabis is bought and sold.

As of Wednesday, 132 licenses for the production or sale of marijuana have been issued, and hundreds of other applications are waiting to be processed. An Associated Press poll found that 109 new marijuana stores should open immediately.

Canada still restricts vaping pens and concentrated THC, the psychoactive chemical contained in cannabis, that is highly consumed for at least a year. The Canadian Department of Health said it needed more time to study the effects of these products on health.

What is the size of the Canadian market?

Canada already has a well established market for marijuana for medical purposes, which has been legal in the country since 2001. The use of the substance for illegal purposes has also increased over the last decade.

In total, 4.7 million Canadians, or 18% of the population aged 15 and over, have used marijuana in the last year, for recreational or medical purposes, according to a 2017 survey of the National Statistics Agency of Canada. (In comparison, 9.5% of the US adult population, about 30 million people, reported using marijuana in the last year, according to data from the National Institutes of Health.)

A worker collects cuttings from a marijuana plant at the Canopy Growth Corporation facility in Smiths Falls, Ontario. Canopy Growth is the largest publicly traded cannabis company in the world. Photo of Chris Wattie / Reuters

Statistics Canada estimates that Canadians spend about $ 4.4 billion a year on cannabis. Of that amount, only $ 570 million was spent on legal medical marijuana in 2017, according to the Arcview group. However, as more and more Canadians switch from illicit markets to legal markets, the research firm predicts that this number will reach $ 1.3 billion in 2018 and $ 5.5 billion by 2022.

So while the number of Canadians who use cannabis is not going up substantially, they will buy it legally – which will translate into tax revenues for the Canadian government. It is estimated that potential tax revenues could reach $ 1 billion. In the United States, states that have legalized marijuana for recreational purposes have generated hundreds of millions of dollars in taxes.

Although marijuana use for medical and recreational purposes is still illegal at the federal level, the US marijuana market accounted for $ 8.5 billion in 2017 and is expected to reach $ 23.4 billion by 2022, after the Arcview group.

Advantages and disadvantages for investors

The relatively small Canadian market for marijuana did not stop investors from flooding. Stocks of Canadian cannabis companies have skyrocketed in recent months as investors prepare for rising demand and, hopefully, earnings.

However, some industry observers warn companies not to take too much in advance – for one reason because of restrictions on items such as vaping pens and THC concentration.

"That's why we're less optimistic about Canada's future growth than Colorado, Washington, and Oregon, where a much more liberal market approach has provoked a growth boom among start-ups." said Tom Adams, general manager of cannabis. market research company BDS Analytics.

Meanwhile, some liquor companies are playing the potty game, betting that regulations will loosen over time.

Molson Coors Brewing Co. announced earlier this year its intention to develop cannabis-based beverages in Canada. Corona's parent company, Constellation Brands, purchased $ 4 billion this year from Canopy Growth, a cannabis producer that already has several products on the market and is one of the largest players in the Canadian drug industry. marijuana.

Part of this investment could be more in the alcohol companies covering their own potential losses to cannabis. Research shows that consumers generally exchange one controlled substance for another when they decide how to spend their discretionary income.

"It's pretty rational. If you have $ 20 to spend for a Friday night activity, if you are in this leisure market, the question is really what consumption will you consume, "said Busby, a public policy researcher.

Who has the upper hand?

Canada and the United States are not exactly competitors in the marijuana industry, because the regulations keep the two markets isolated. But companies are already looking for ways to broaden their horizons, thinking of a world in which they could compete freely across borders.

Cura, a cannabis oil company headquartered in Oregon, announced earlier this year that it was entering the Canadian market for marijuana for medical purposes. California-based Kush Bottles, which supplies cannabis packaging and accessories, opened a subsidiary in Toronto earlier this year.

These companies may find themselves in tough competition with well-established Canadian companies. But US companies that already mass-produce specialized marijuana products, such as vaping pens and edible products, may have a "first-mover" advantage in Canada if it looses restrictions on these products. l & # 39; future.

A sign warning travelers to cross international borders with cannabis is visible at the Ottawa International Airport. Because marijuana is still illegal at the federal level in the United States, the Canadian and US markets are still largely divided. Photo of Chris Wattie / Reuters

Canadian companies are also moving. Canopy Growth announced Monday the purchase of a Colorado-based research and development company, ebbu, to develop "new large-scale cannabinoids".

Canadian companies also have a distinct advantage in raising capital. They can get bank loans in Canada more easily than their US counterparts, and they can be listed on the Canadian stock exchange. (Some US pottery companies are also trying to be listed on the Canadian stock exchange.) Canopy Growth is the largest publicly traded marijuana company worth more than $ 13 billion.

Other US companies can be reassured by the fact that, at least for the moment, Canadian companies can not sell their products in the United States or anywhere else in Canada.

"They have all this capital and they have nowhere to send it," said Micah Tapman, managing director of Canopy Ventures, an unincorporated venture capital fund based in Colorado. This means for the moment "that there is no global market as such," he added.