Despite the fact that medical marijuana is not yet legal in nearly half of the states in the U.S. and even fewer states have legalized adult-use marijuana, the country is still the leader in marijuana sales around the world. Even with Canada’s legalization of recreational marijuana this year, the U.S. will still retain its position as the global marijuana sales leader.
Near the end of 2017, the United States was responsible for 90% of global marijuana sales, but that number was expected to drop to 57% by 2021 according to research from Brightfield Group, a market research firm focused on the legal cannabis industry.
In its report, Canada and International Cannabis Markets, Brightfield’s researchers discovered that despite growth trends in international marijuana markets (12 countries are expected to have viable medical marijuana markets by 2021 and six are expected to have viable recreational markets by then), the United States will continue to dominate global marijuana sales in the future.
The global cannabis market reached $7.7 billion in 2017 with the United States accounting for $7 billion of that sum. Of the remaining $700,000, Canada made up $600,000 of it. By 2021, the market will soar to $31.4 billion, and together, the United States and Canada will make up 86% of global sales. The European market, which will be dominated by Germany, the Netherlands, Spain, and Switzerland, will account for 12% of the global market in 2021 leaving just 2% to the rest of the world.
The Brightfield Group predicts that more countries will legalize marijuana exports in the coming years creating a truly global medical marijuana market. However, despite growth trends, there are negatives that businesses and investors need to understand before venturing into international marijuana markets.
In November 2017, I spoke with Bethany Gomez, Director of Research for Brightfield Group, to learn more about the barriers international investors should understand, and her comments are as relevant now as they were then. Here’s what she had to say:
Cannabiz Media: What are the key differences between the U.S. marijuana market and international marijuana markets, particularly Canada? What are the biggest barriers for businesses that want to enter the marijuana industry in countries other than the U.S.?
Bethany Gomez: The biggest differences are that outside of the U.S., product types are extremely limited, and outside of North America, patient and other user access is much more limited. Edibles are nearly nonexistent outside of the U.S., and oils, tinctures and CBD dominant products are much more common (whereas in the U.S. they make up only a small percentage of the overall market). In Canada, the recreational market will not allow for edibles until 2019, and while international markets are opening up medical programs, acceptance of edibles is rare, which is certainly a barrier to entry for companies with this focus in the immediate term.
In Canada, in particular, a large difference is the level of consolidation of the market and the resources now behind the largest companies. There are more than 1,400 brands of cannabis products in the U.S., and the vast majority of brands are still relatively small in scale. In Canada, there are only 73* LPs (though more are being approved at a rapid clip), and many of those are owned by the same company. With limited product differentiation in the immediate term (with only flower and oils permitted) and limited channels for distribution, it will be challenging to compete with the larger players.
*The number of licenses in Canada has grown to 113 today according to Health Canada.
Cannabiz Media: For investors who want to invest in international marijuana companies, what are the key factors they should understand before they make a decision?
Bethany Gomez: It’s important to have realistic expectations for the growth potential of the markets these companies are playing in and to be cognizant of how changes in the regulatory structures in those countries would affect the entrance of other businesses into the market.
Cannabiz Media: What are the biggest red flags or good signs that could be the same or different from what investors would look for in the U.S.?
Bethany Gomez: Understanding the pricing structure and how this relates to their profitability is vital in international markets. With such limited product differentiation, many of the products on the market become commoditized, and at present, the pricing of most medical marijuana products overseas is so high that it is discouraging patient uptake.
Cannabiz Media: What were the biggest surprises discovered in the research?
Bethany Gomez: First, that much of the hype about international markets was overblown, and second, that some aren’t on most people’s radar (like Switzerland) and are being overlooked. Also, it was a big surprise to me just how incredibly expensive medical marijuana products were going for internationally when products are typically so accessibly priced in the U.S., and it’s having such a damaging effect on patient access in those countries.
The Key Takeaways
The Brightfield Group highlighted six key takeaways from its research:
- International legalization of medical marijuana is moving forward with nuanced laws in each country.
- A lot of the hype about international marijuana markets is overblown as it relates to sales volume.
- International marijuana markets are not like U.S. markets. There are differences in distribution models, product types, laws, and more that can limit the size and scale of marijuana programs in different countries.
- The growth of international marijuana markets is limited due to overpriced medical marijuana that patients cannot afford.
- Global brand building will be difficult due to the lack of product differentiation, which is directly affected by the types of products businesses are allowed to manufacture and sell as well as by the distribution system. In many countries, distribution follows a system that is more similar to a pharmaceutical model than the retail dispensary model used in the United States.
- Recreational marijuana will slowly spread across the globe through developed countries.
Bottom-line, the international marijuana market is growing, and it’s worth watching very closely. While it might seem like investing outside of North America, it’s important to do your research and understand that many of those markets don’t have the population, product variations, infrastructure, or processes in place to keep pace with the U.S. Every country is different, so the importance of doing your homework can’t be emphasized enough.
Originally published 11/21/17. Updated 7/20/18.
Susan Gunelius, Lead Analyst for Cannabiz Media and author of Marijuana Licensing Reference Guide: 2017 Edition, is also President & CEO of KeySplash Creative, Inc., a marketing communications company offering, copywriting, content marketing, email marketing, social media marketing, and strategic branding services. She spent the first half of her 25-year career directing marketing programs for AT&T and HSBC. Today, her clients include household brands like Citigroup, Cox Communications, Intuit, and more as well as small businesses around the world. Susan has written 11 marketing-related books, including the highly popular Content Marketing for Dummies, 30-Minute Social Media Marketing, Kick-ass Copywriting in 10 Easy Steps, The Ultimate Guide to Email Marketing, and she is a popular marketing and branding keynote speaker. She is also a Certified Career Coach and Founder and Editor in Chief of Women on Business, an award-winning blog for business women. Susan holds a B.S. in marketing and an M.B.A in management and strategy.