12 May What does the future of the global cannabis industry look like?
There’s a quiet cannabis revolution gathering steam on a global scale. Data shows that the legal cannabis market was valued at £17.38 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 14.3% from 2021 to 2028. Research And Markets predict a value of £63.8 billion for the global industry in the next five years. The medicinal cannabis segment, which has exhibited some specific growth trends during the recent years, has an expected CAGR of over 15% for the same period. There is, undoubtedly, massive potential in the industry to boost the global economy.
The forecasts suggest that the recreational segment will be the faster-growing due to high consumer demand, with delta-9-tetrahydrocannabinol or THC dominating the market share in terms of cannabinoid compounds. But THC – aside from its psychoactive properties – also has medical benefits, such as relieving nausea, pain, and appetite loss. On the other hand, cannabidiol or CBD – the primary non-psychoactive medicinal cannabinoid – is relatively less regulated, but the market is competitive.
Drivers of the Cannabis Industry
From a forward-looking perspective, the key drivers of the global cannabis industry are the growing applications of medicinal cannabis, increasing legalisation across countries, and the rise in social acceptance of marijuana. The prevalence of chronic diseases is another factor that supports the increased uses of medicinal cannabis and provides an impetus for market growth.
The increasing legalisation of medicinal cannabis, along with well-structured healthcare systems, is why Europe is set to lead the way among fast-growing markets in the coming years. Globally, some of the other promising markets that have been quick to move away from 70s era prohibition are Israel, Canada, China, and Australia. The emergence of cannabis legalisation in Asia-Pacific is incidentally a key opportunity that is driving growth of the overall cannabis market.
Clinical trials, research and development activities are further expected to catalyse this growth. At the same time, complex regulatory structures in some major markets like the UK will continue to be a restraining factor.
Market Disruptions due to COVID-19
As in other industries, COVID-19 has been a major disruptor in the cannabis industry too, serving as an immediate challenge as well as a future opportunity. At the onset of the pandemic, medicinal cannabis was decreed an ‘essential business’ in many legal markets, owing to its efficacy in helping people deal with anxiety, depression, and other mental health challenges.
One of the key market opportunities hereon is product development via innovation, research, and improved logistics. The difficulties of COVID-19 and stringent lockdowns have fast-tracked progress in these areas.
- Disrupted supply chains due to COVID-19 have directed attention towards the development of novel delivery solutions in legalised cannabis markets. Consumers are preferring cashless, contactless deliveries over pre-COVID era over-the-counter interactions.
- Along with delivery, ‘Point of Sale’ has become a hot area of interest. Utilising API technology in payment or PoS interfaces promises to be a smart move for the future. According to the Founder Institute, other areas that need exploring are AI and blockchain technology on the contract and compliance sides.
- Data analytics has a growing role and ERP (Enterprise Resource Planning) systems are becoming necessary to track the rapid developments in the industry. This is a cue for big developers to enter and acquire upstarts in the space.
Future of the Cannabis Industry in Key Markets
As prejudices against marijuana lessen with awareness, more countries join the legalisation bandwagon. For example, Mexico is currently on the cusp of a Senate bill that will legalise cannabis for adult non-medical use. According to experts, the largest developments in the commercial cannabis industry will be new markets and new businesses that penetrate these markets. These are opportunities that will open up revenue streams and customer bases in these regions, paving the way for multi-state-operator (MSO) cannabis companies to enter.
Among geographical markets, North America (Canada and the United States) occupy the leading position. Other major areas include Europe, Latin America, Asia-Pacific, Middle East and Africa. Euromonitor International picks key markets where the future of the cannabis industry is to watch out for.
The German cannabis market is predicted to become Western Europe’s largest by 2025. The projected value of about £5 billion (€5.8 billion) includes both the legal and the illicit sectors. The medicinal cannabis sector, in particular, has displayed staggering growth, jumping to more than £163 million (€190 million) within three years of its legalisation in 2017.
Recreational cannabis could become legal in another five years, and a controlled market would open up opportunities for new tax incomes like VAT and excise duty. The country’s export-oriented market could also reap the benefits of a relatively new industry ready for technological expansion.
● United Kingdom
According to the Centre for Medicinal Cannabis (CMC), the UK cannabis market has an evolved but complex regulatory framework for consumer cannabis extracts. The overall cannabis market has considerable potential, and the OTC market for CBD oil alone could be worth almost £1 billion by 2025.
Mainstream media coverage of the medicinal benefits of cannabis catalysed the legalisation of some CBMPs in 2018 and continues to drive interest and growth in the market. The economic impact of COVID-19 has also lent impetus to increased political support for wider legalisation reforms. In fact, a legal adult-use market will likely emerge in another five years.
But despite the legal status of medicinal cannabis, the prescribing regime under the NHS remains severely restrictive. The majority of prescriptions are obtained in the private sector at elevated costs. Initiatives like the UK Medicinal Cannabis Summit and the new UK medical cannabis card will hopefully influence future guidelines. The pace of change will remain gradual, but given time, cannabis is sure to play an established role in UK healthcare. The medicinal cannabis market is projected to be worth close to £1 billion and will be servicing around 340,000 patients by 2024.
● United States
One of the strongest factors that will drive the cannabis industry in the next few years is federal legislation, with expected growth of 364% and sales of £37.5 billion ($53 billion) by 2025. The fact that every state-level legalisation measure on the 2020 ballot was passed is a clear push towards eventual nationwide legal adult use.
With increasing legalisation, product variety and options will continue to expand. Like in Canada, the adult-use recreational market will also cannibalise the medicinal market. Although CBD has shown impressive growth in the US market, it is hindered by a lack of clear labelling and poor perception of product quality. Nonetheless, the sector will continue to expand and is likely to reach £7 billion ($10 billion) in sales by 2025.
The last two years have witnessed some shortages of medicinal cannabis in Canada in the wake of legalised recreational use (which diverted producer efforts) and the COVID-19 crisis. This has resulted in a negative CAGR forecast for the next few years with medical patients opting to purchase from the recreational market instead.
However, the overall market is expected to record a CAGR of 25% and close to £1 billion (CAD 1.1 billion) in sales over the next few years, thanks to growing awareness and consumer interest. Greater availability of CBD formats has opened up options for specific uses by customers looking for non-THC benefits.
Since Australia legalised cannabis for medicinal and research purposes in 2016, the market has experienced a surge in interest from patients, producers, and investors, raking up a value of £30 million (AUD 55 million) in four years. The growth is rapid and to the tune of an estimated £1.2 billion (AUD 2.3 billion) by 2025.
There is market optimism surrounding the possibility of regulation in the future that would allow over-the-counter sale of CBD products. The change might be slow due to difficulties involved in proving efficacy at permitted dosages but is nonetheless cause for positive sentiment.
Reform laws like licensing, decriminalisation, and cannabis banking will have to be addressed across current and emerging markets to seize opportunities, handle challenges, and create a future of fairness and equity in the industry. But overall, the future of the cannabis industry looks far brighter than its past.