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Canopy Growth sees $70B pot market by 2023, driven by U.S. legalization

Jeff Lagerquist
·4 min read
Products from cannabis brand Tweed are pictured on the shelf at the Thomas H. Clarke Distribution retail store as Canada legalizes recreational marijuana, in Portugal Cove-St. Philip's, Newfoundland and Labrador, Canada October 17, 2018. REUTERS/Chris Wattie
(GETTY)

Canopy Growth (WEED.TO)(CGC) sees the addressable legal cannabis market expanding to nearly $70 billion globally by 2023, up from almost $10 billion today.

“Canada is expected to be about four times the size that it was in 2019. U.S. CBD, six times. In Germany, about 10 times . . . by the time we get to 2023,” Canopy’s chief executive officer David Klein said during the company’s virtual investor day on Monday. “Our goal is to hold a leading share position in each of these markets.”

Canopy expects the United States, Canada and Germany to account for 90 per cent of the global market in three years. Since taking over the CEO job in January, Klein has narrowed the company’s global focus to those three countries amid a sweeping overhaul of the cannabis giant. He sees growth in the company’s core markets reaching $22 billion by 2023, with $60 billion to be unlocked if cannabis sales are permissible under U.S. federal law.

He told Yahoo Finance Canada earlier this month that he sees that happening in 2022, regardless of the outcome of the U.S. presidential election, allowing Canopy to enter the world’s largest pot market through its deal to acquire Acreage Holdings (ACRG-U.CN).

While shut out of selling THC cannabis stateside, Canopy has focused on building a consumer base through its CBD brand launched in late 2019 called First & Free, as well as sports drinks and skin care products through its BioSteel and This Works subsidiaries.

Klein said the U.S. CBD market is currently worth $3 billion annually, and is expected to hit $10 billion by 2023. He notes U.S. CBD is currently a “cluttered and confusing” space with more than 2,700 brands in the market, and 94 per cent of companies realizing sales of less than a million annually.

The U.S. Food and Drug Administration’s (FDA) ban on marketing the non-intoxicating cannabis compound as a food additive or dietary supplement has been a roadblock for the CBD category.

Klein said Canopy is acting as “a voice for our industry on Capitol Hill,” actively sharing CBD research with the FDA, and holding ongoing discussions with political leaders to see it classified as a dietary supplement.

Canopy plans to roll out 40 plus CBD products for the U.S. market spanning gummies, vapes and beverages. A line by Martha Stewart is expected in the fall, with a focus on humans, and later pets.

“Our aspirations in the U.S. CBD market is based upon our expectation that by full-year 2023 the market would be a $10 billion market at retail. The FDA would have clarified CBD regulations, opening a pathway to broader distribution and product formats, and we’d be on the way to becoming a leading CBD supplier to large format retailers,” Klein said.

"We intend to make a lot of noise in the U.S.," Klein said.

Turning to Canada, Canopy recently saw its share of its home recreational market slip. Canopy has about 15 per cent of the Canadian recreational pot market, down from about 20 per cent from the beginning of the year, according to analyst estimates.

Chief product officer Rade Kovacevic said Canopy still holds a top three market share position in most province and territories.

Klein said the company is taking steps to address the Smiths Falls, Ont.-based pot giant’s waning dominance.

The plan involves greater focus on the popular lower-priced cannabis category, improved quality, and promotion of its cannabis 2.0 offerings like beverages, vapes and chocolates. Canopy will also cull underperforming items from its portfolio.

“Roughly 30 per cent of our SKUs have accounted for 80 per cent of our Canada recreational shipments. Simply put, we had too many low-velocity SKUs through our supply chain taking away resources from executing on the supply of high-velocity SKUs,” said Kovacevic.

“We’ve missed opportunities to capture $20 million in sales in Q4 alone due to product availability issues.”

Newly hired chief insights officer Chris Edwards said Canopy is looking to those outside the current crop of cannabis consumers to fuel future growth. According to his figures over the last 12 months, only a quarter of the potential market has consumed cannabis, 37 per cent of which bought through legal channels.

“There are different barriers that need to be overcome to get them to consume our products,” he said. “Product innovation that doesn’t require inhalation is a huge opportunity. Our beverage portfolio has products with rapid onset and no calories and sugar.”

Canopy said it has shipped over 530,000 beverage units since the first products hit the Canadian market in the spring.

In the German medical market, Canopy expects 2023 sales of close to $2 billion. The company acquired German-based cannabinoid firm C3 in 2019 to tap into growing adoption of medical cannabis therapies in Europe’s largest medical market.

“There’s only a couple hundred million dollars in sales today,” Edwards said. “It’s going to be well north of a couple of billion dollars. So we’re very bullish on the German market long term.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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