The North American Marijuana industry is consistently growing like a weed and analyst believe this is only the beginning. ArcView has estimated that legal marijuana sales in North America have an annual growth rate of 26% through 2021. If this plays out, the industry will be valued around $22 billion by 2021, compared to 2016’s value of $6.9 billion. Massive growth is what continues to attract investors to one of the hottest industries of all time. However, this growth isn’t being led by the United States but rather Canada. Here’s why Canada is the number one driver of the industry.
First and foremost, Canada has a long-standing medical marijuana program. Since 2001, our neighbors to the north have legalized medical pot. According to Health Canada, which is the equivalent of the U.S. Department of Health and Human Services, the number of eligible medical patients is increasing by 10 percent each month. Medical marijuana, solely, has been enough for Canadian marijuana stocks to be profitable. For instance, MedReleaf (MEDFF) and Aphria (APHQF) have both profitable for the past two years just based on their medical marijuana sales.
Second, the political differences between the Canadian federal government and that of the United States make a large difference. Although, in the U.S twenty-nine states including the District of Columbia have legalized some form of marijuana, it remains illegal on the federal level. Attorney General Jeff Sessions is determined on reinstituting federal law and prosecuting medical marijuana businesses continues his war on marijuana.
On the other hand, recreational marijuana legalization was introduced by Prime Minister Justin Trudeau in April 2017, and Canada is set to become the second country in the world, behind Uruguay, to legalize recreational pot this July. The way Canada is approaching recreational taxation is nothing like how U.S. legal states tax marijuana products.
Canada recently presented a $0.78-per-gram tax on marijuana sales of up to $7.80 a gram, with a flat 10% tax on marijuana that is more expensive. This is a lower tax rate on marijuana than for alcohol. Trudeau believes that the only way the legal market will thrive is to be price competitive and drive black-market out of business. U.S. states are reliant for this additional tax revenue to assist with filling gaps in budgets. For instance, certain parts of California could pass along nearly a 45% tax to retail marijuana customers, which will only drive consumers into the hands of the black market.
Lastly, the Canadian marijuana industry permits it to be more successful than the U.S. marijuana industry. There is a handful of key players that control half of the medical and recreational market. This includes Canopy Growth Corp. (TWMJF), Aurora Cannabis (ACBFF) Aphria, and MedReleaf. The Canadian marijuana industry permits lower growing costs, easier access to capital, as well as more mainstream brand presence. The U.S., the marijuana market is split. Small dispensaries and growers tend to dominate, rather than key players in the space. This leads to inconsistent pricing and high growing costs. This makes it harder for U.S.-based pot companies to be competitive on price with the black market.
Presently, Canada’s marijuana industry has is smoking out the United States, but as the U.S market matures we consider what have to look forward too.