A new report on Canada’s legal marijuana industry by the country’s fourth-largest bank signals growing interest in the sector among institutional investors, which until recently have been extremely cautious in their approach to cannabis businesses.
Analysts on CIBC’s Institutional Equity Research team estimate that legal retail sales of recreational marijuana will reach 6.5 billion Canadian dollars ($4.6 billion) in 2020.
The analysts also predict CA$1 billion in earnings before interest, tax, depreciation and amortization (EBITDA).
It’s the first time CIBC has addressed the marijuana industry for its institutional clients in such a public fashion. The Bank of Montreal appointed its first dedicated cannabis analysts in May.
Among the other notable takeaways from the CIBC report:
- The legal market will involve 800,000 kilograms of marijuana by 2020, and 95% of that, or CA$6.5 billion, will be for recreational use.
- Most of the “value” generated from the industry will end up in the hands of the federal and provincial governments.
- Mergers and acquisitions will likely continue “at a frenetic pace.”
- Licensed producers will be sorted into the haves and have-nots, “likely sooner than many market participants may think.”
- Retailers “will have materially less profit available to them than in a vertically integrated world.”
The report is yet another example of how far Canada’s cannabis sector is ahead of its U.S. counterpart.
Canadian industry insiders believe marijuana businesses will become a more attractive investment option among institutional investors as the path to long-term profits becomes clearer and companies are added to stock indexes.
“An equity research report from such a leading Canadian firm clearly signals the wider arrival of credibility of the cannabis industry for institutional and other serious, traditional investors,” Glen Shear, former executive director of CIBC World Markets, told Marijuana Business Daily.
“This was inevitable given Canada’s unique leadership position, not only throughout North America, but also globally,” said Shear, who is now senior executive at a Massachusetts marijuana company, Garden Remedies.
“And it’s about time. Why should Canada’s institutional players – and the myriad of investors they represent – miss out on one of the most exciting, profitable and medically meaningful movements of our time?”
Matt Lamers can be reached at [email protected]
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