Legal marijuana could be worth $47 billion in the US alone, according to a Wall Street analyst (STZ, CGC)

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Legal marijuana could be worth $47 billion in the US alone, according to a Wall Street analyst (STZ, CGC)

pot weed marijuanaEdgard Garrido/Reuters

  • RBC Capital Markets is trying to address investor anxiety surrounding the nascent marijuana industry.
  • The bank says Constellation Brand’s recent investment in Canopy Growth is “exactly the type of move that more companies should be making.”
  • In total, the US’s legal marijuana sales could reach $47 billion in the next decade, RBC estimates. 

Wall Street is catching the cannabis bug.

In a lengthy note to clients on Wednesday, RBC Capital Markets estimates that legal sales of marijuana in the US are quickly catching up to beer and wine, and could be worth $47 billion within the next decade.

“In this US, the legal cannabis category is set to grow at a 17% CAGR over the next decade to as much as $47 billion in annual sales (this compares to the current diaper category at $4 billion in sales),” analyst Nik Modi wrote.

“Driving the growth is recreational use of the product, particularly concentrates and edibles. Estimates already suggest that the US category alone is $50 billion, which compares to spirits $58 billion, wine $65 billion, and beer $117 billion.” RBC’s $50 billion estimate includes both legal and illegal sales, and it’s not clear what the percentage is of each. 

Marijuana industry size USRBC Capital Markets

The investment bank also sang the praises of Constellation Brands‘ recent investment in Canopy Growth — the largest publicly traded marijuana company — as ahead of the curve. Constellation Brands is the $38 billion behemoth behind Corona, Modelo, Svedka, and more.

“We think this is exactly the type of move that more companies should be making (not in cannabis necessarily, but having the foresight to invest in future revenue streams, especially at a time when the core business is performing),” Modi said.

“We believe that Constellation’s approach of sequentially increasing its stake in Canopy is a win-win approach, as it enables both parties to participate in CGC’s upside while allowing Constellation to simultaneously manage leverage levels.”

Shares of Canopy Growth have skyrocketed since Constellation said it would up its stake in the company. The stock has surged more than 38% this week alone, putting it back above its May initial-public-offering price of $28. 

But as the prevalence of recreational marijuana grows, company’s are finding that basic bud doesn’t cut it with consumers, and has lower margin than other concentrated products. In Colorado, for instance, where recreational sales have been legal for more than four years, plain flower has dropped from 70% of total sales to 46%, with concentrates filling the gap.

Cannabis category composition over timeRBC Capital Markets

Of course, new regulations could hurt the rollout of marijuana both in the US and globally, but RBC isn’t worried, and says 83% of Americans say there should be some form of legal marijuana usage.

“We believe further US decriminalization of cannabis including for recreational use is very likely over time,” the bank said. “It ultimately starts with US voters who across demographics are supportive of cannabis legalization.”

Business Insider recently spoke to Canopy’s CEO, Bruce Linton, about what’s next for the company as it expands beyond its Canadian home. You can read the full interview here. 

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