The Road to Canada’s Potential $5B Recreational Marijuana Market

102615_The Road to Canada's Potential $5B Recreational Marijuana Market 

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With Liberal Justin Trudeau sealing his win as Canada’s prime minister, things are looking bright for the future of recreational marijuana in the country.

“The Canadian marijuana space could be set for another revolution,” said Dundee Capital Markets analyst Aaron Salz, who estimated that the recreational pot market could amount up to $5 billion once it is legalized.

Opportunities are certainly aplenty. At present, there are 35,000 to 40,000 patients enrolled in Health Canada’s medical marijuana program, which is now worth $80 to $100 million. Canada’s 26 licensed producers, such as Canopy Growth, Mettrum Health Corp., and Aphria Inc., are poised to capitalize from the legalization of recreational weed. After all, the nation already has a fully established regulatory environment that is considered to be the best in the world.

But the industry is also facing challenges. For instance, none of these major cannabis players are already generating positive cash flow, though some are definitely close. Once marijuana production rises, it could put pressure on the prices and force a lot of small producers to either shut down or merge with competitors.

Legalization might also attract global giants from the alcohol, tobacco, and pharmaceutical industries, thereby making consolidation more likely. Their best move is to acquire existing producers that can scale up production and are fully familiar with the regulatory environment.

“The concern will be that they make a hostile takeover bid or pursue very aggressively,” said Bruce Linton, chairman and chief executive of Canopy Growth. However, he was quick to add that, “Those are good problems to deal with.”

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