CANNABIS - MARKET SIZE REPORT

Introduction

This year, the gift bags of celebrities at the Oscars included

chocolates laced with THC, CBD skin care, and membership to a
Cannabis-friendly club in Los Angeles. Sure, if you aren’t rich
and famous, all of that is going to cost you thousands of dollars
but let’s take a second to acknowledge just how popular (and
pervasive) Cannabis products have become.

Zora Milenkovic, head of drinks and tobacco at Euromonitor

International said that "Within 10 years, Cannabis will be a
regular part of daily routines”. We think that the continued
growth of the CBD market and the integration of CBD into
various everyday consumer products, unburdened by stigma,
sets a good precedent for what Milenkovic said.

A search on PipeCandy’s https://bit.ly/2XLM2Zl

Agent Sift for e-commerce websites
containing the keyword “CBD” displays over 6,600 results
indicating that the Cannabis revolution has already swept its
way through consumer categories such as food, beverages and
wellness supplements.

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In this report, we estimate the market size of the Cannabis
industry and take a look at the evolving legal landscape, trends,
and issues taking shape in two of the biggest Cannabis hubs -
the US and Canada.

https://bit.ly/2XLM2Zl

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The Basics

All too often, terms like CBD, Hemp, Marijuana, and Cannabis
are tossed around together while they mean different things.
For the benefit of educating ourselves and those who may be
unfamiliar, we have dissected what each of these terms mean.

The Cannabis plant consists of three main species - Sativa,

Indica and Ruderalis. The first two are primarily used for
consumption. Hemp and Marijuana are derived from them.
Hemp refers to varieties of Cannabis that contain 0.3% or less
THC content by dry weight. It is involved in the production of
resources such as food, clothing, paper, ropes, etc. Marijuana
refers to Cannabis varieties that contain more than 0.3% THC
by dry weight. THC stands for Tetrahydrocannabinol. It is the
psychoactive strain in the Cannabis plants that induces the
‘high’. CBD means Cannabidiol. It is one of some 113 identified
cannabinoids in Cannabis plants and accounts for up to 40% of
the plant's extract. In the US, Hemp and Hemp-derived products
(such as Hemp-derived CBD) have been federally legalized
under the Agricultural Improvement Act of 2018 (also called the
2018 Farm bill) while Marijuana remains illegal under the
Controlled Substance Act.

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Cannabis: Market Size & Growth

The global Cannabis market, both legal and illegal was

estimated to be around $150 billion in 2018. By 2025, it is
predicted that legal Cannabis alone will be worth $166 billion or
77% of the market. Experts such as the Brightfield Group
predict that the hemp-derived CBD market alone will reach $22
billion by 2022.

The legal Cannabis market constitutes about 8% of the global

Cannabis market or $12.2 billion, and is poised to grow at a
CAGR of 38% in 2019. The US represents about 90% of the legal
market, followed by Canada and the Rest of the world.

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Below, we break down the market estimates of the US and
Canada by their states and provinces respectively.

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Canada legalized recreational Cannabis on October 17, 2018.
Growers now get licensed by the Federal government, and then
individual provinces determine how the product gets
distributed and sold. In the US, Medical marijuana is legal in 33
states and Recreational in 10. In Europe, the question of legality
is a bit diverse. You are not likely to be punished for minor
possession in Spain, Portugal, Italy, Ireland, Slovenia, Croatia,
Bulgaria, Latvia, Belgium, and the Czech Republic. On the other
hand, Greece, Cyprus, Hungary, Sweden, and Finland have some
of the harshest drug laws; they consider all types of drug use a
criminal offense and possessors may be faced with prison time.

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CBD: Market Size, Growth & Legality

Right now, the buzz is all about CBD. CBD is one of the many
hundreds of cannabinoids found in the Cannabis plant. The
ingredient is being credited with a growing list of health
benefits from preventing insomnia, anxiety, epilepsy, arthritis,
chronic pain, to curing a few other ailments given its sedative,
anti-inflammatory, antibiotic, pain relief, bone healing, and
appetite stimulant properties, and, as a result, companies from
virtually every consumable category, including beverages,
dietary supplements, skin care, and pet products, are actively
exploring business in the market.

The growth of low and non alcoholic beverage consumption

(like CBD water) and the shift from cigarettes to vaping provide
an opportunity for Cannabis to replace alcohol and tobacco in
social occasions.

Vitamins and dietary supplements are expected to be the

largest Cannabis-related category by 2025, with 2 percent of
sales to come from products containing CBD.

Global sales of packaged food with CBD are expected to double

over the next two years, further blurring the lines between
consumer health and food.

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a) The U.S.

The hemp-derived CBD market in the US was an estimated $500

million, growing at a 40% CAGR.

The US Farm bill, passed in December 2018, makes hemp and

hemp-derived substances legal under certain circumstances
although it doesn’t create a system in which people can grow
hemp as freely as they can grow say, tomatoes. The bill de-
classifies hemp-derived products, including CBD, from the
Schedule 1 status but it does not legalize CBD generally. It is
still federally illegal to cross state lines with CBD. While the
Farm bill comes as a bit of a breather, the FDA has yet to issue
regulations regarding CBD and until it does, it continues to
treat CBD as a Schedule 1 substance according to US Federal
law. Given this scenario, the legality of CBD remains a gray area
and a significant amount of research on the part of the
consumer is recommended in knowing who the producer is and
whether their products are legal

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b) Canada

Market estimates for the value of hemp-derived CBD in Canada

are limited.

Canada became the second country in the world to legalize

Cannabis (after Uruguay). Like the US, Canada has its own
provinces, each of which has its own laws regarding Cannabis.
Although the Cannabis Act applies to all of Canada, depending
on where shoppers live, their ability to purchase Cannabis may
differ. The Cannabis Act ruling states that Cannabis must be
“legally acquired”, that is, it must come from an approved
provincial or territorial retailer. Any mention of CBD is missing
in the announcement which has left both consumers and
retailers baffled. Some say that since recreational marijuana is
now legalized, it implicitly legalizes CBD as well. Industry
experts, however, say that since CBD in and of itself its part of
the Cannabis plant, it will be subject to the same restrictions as
THC, Hemp, and Marijuana.

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Going Mainstream

CBD-infused products have made inroads into mainstream

retail stores such as CVS, Walgreens, Neiman Marcus, and
Sephora, despite the ongoing disputes around its legality. The
FDA still considers the addition of CBD to food and health
products without its approval illegal. The agency has been
cracking down on businesses making medical claims. Early this
year, in New York City, the Department of Health ordered that
restaurants, bars, and other venues stop selling CBD-infused
edibles as the FDA maintains that CBD is not "safe as a food
additive”. It’s probably due to this that big-box retailers like
Target and Walmart are keeping their eyes peeled open for any
regulatory changes before stocking CBD on their shelves.

Research shows that nearly 7% of Americans on average have

already used CBD in some form. The Cowen survey found that
CBD use is highest among consumers aged 18 to 34. From a use-
case perspective, Tinctures (liquid extracts) account for the
lion’s share of the CBD market (44%), followed by Topicals
(26%), Capsules (22%) and Beverages (19%).

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On the distribution front, much of the sale continues to happen
through Dispensaries. Popular Drugstore chains such as CVS,
Walgreens, Rite Aid, and Luxury retail stores like Sephora,
Neiman Marcus and Barney’s have also opened their doors. In
June this year, Kroger became the first big-box retailer to
announce that it’d carry CBD in nearly 1000 stores.

In fact, CBD is going so mainstream that even consumer-goods

and media maven Martha Stewart is hopping onboard. Stewart
announced in March this year that she’s teaming up with
Canopy Growth to design and produce new CBD lifestyle
products for pets and people.

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In fact, CBD is going so mainstream that even consumer-goods
and media maven Martha Stewart is hopping onboard. Stewart
announced in March this year that she’s teaming up with
Canopy Growth to design and produce new CBD lifestyle
products for pets and people.

Designer Shoe Warehouse (DSW) has also signed an agreement

with Green Growth Brands to sell its Seventh Sense brand which
offers CBD-infused products including muscle balms, body
lotions, body washes, and foot creams. Real estate provider
Simon Group announced earlier this year that it has partnered
with Green Growth Brands to open 108 CBD shops inside its
malls.

Anheuser-Busch, the maker of popular beer Budweiser is

already exploring the value and viability in the direct selling
approach to selling CBD products through a $100 million joint
venture with Tilray Inc., a leading Canadian cannabis company.

A number of similar deals worth millions of dollars continue to

happen yet all is not well upstream. The supply chain is riddled
with issues which may take years to be ironed out.

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The Supply Chain

Firstly, there is a supply problem. Demand is so high that

growers are not able to keep pace. This has left cannabis
companies in some regions unable to meet consumer demand,
forcing them to temporarily close or to constrain their opening
hours as a result of the shortage. The supply problem rolls back
to the fundamental challenges involved in producing industrial
hemp.

The cultivation techniques for hemp have yet to be mastered.

For decades now, the cultivation of hemp and marijuana has
been illegal with growers employing their own techniques,
giving rise to an industry that has grown to be extremely
fragmented with different growing techniques.

David Williams, an agronomist at the University of Kentucky

who studies hemp was quoted as telling CNBC “Most hemp
farmers are growing the plant like a tomato, a process that’s
expensive and intensive. This model works for marijuana
because you want the flower to look and smell nice. For hemp
that will be used to extract CBD, this system is incredibly
expensive and unnecessary since you only care about what’s
inside the flower”

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Secondly, farmers won’t know how much THC their plants
contain until the hemp has been harvested, dried and CBD
extracted. A number of studies by federal regulators have come
to find that many products don’t actually contain the measure
of CBD they claim to. This is also due in part to the absence of
federally regulated lab tests. Thus, the growing and testing
phases are both in experimental mode, reflecting just how
nascent the supply chain is.

The experimentation approach spills over to the merchandising

side of things as well, where retailers and brands are only
beginning to derive correlations between personas and product
types. They are yet to figure out what products sell best to
which demographic.

Scott Mandell, President of Cannabistry Labs, a scientific

research and development company, told PipeCandy that
“Some are using cannabis for medical purposes, some are
looking to incorporate cannabis into their daily well-being,
while others simply want to get high. So from a merchandising
standpoint, you can either try and take a shotgun approach and
try and be all things to all people, which is usually quite
challenging to pull off, or you can pick a lane (or two) and try
and cater to a specific subgroup of consumers”

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Wild Wild West

Catherine Lang, a retail analyst with Kantar Consulting,

predicts that convenience stores will be among the next
retailers to start selling CBD products. There are over 200,000
convenience stores in the US and Canada combined, and this
massive footprint is staggering when we consider the sheer size
of the customer base that it stands to unlock for CBD.

The major challenge for these stores would be to effectively

market CBD-infused cosmetics and drugs. They can run into
trouble if they make unverified health claims. This has
happened before. Also, unlike the footprint of a big-box retailer
that can run into the thousands, convenience stores number in
the hundreds of thousands, which mandates the cannabis
industry to become more responsible, transparent and
structured before its products land in their shelves of every
store at the corner of the street.

Right now though, it would seem fair to say that the Cannabis
industry is the Wild Wild West, making education of paramount
importance to everyone involved in the value chain from
growers to scientists to retailers to consumers and industry
experts.

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