4 Major Market Opportunities For The Cannabis Industry

Cowen analysts recently published an in-depth valuation of key players in the cannabis industry drawing from historical data and market trend.

The valuation includes an outline of the potential market opportunity for the cannabis sector beyond legalization in Canada next week. Cowen's Vivien Azer named four consumer verticals she expects the cannabis sector to touch. 

1. Adult Use

Cannabis is becoming a more widely accepted social substitute to alcohol, a trend proven by declining reported alcohol use and increasing cannabis use incidence among college-age adults, Azer said in the note. (See her track record here.) 

“Early evidence would suggest that access to both medical and adult use cannabis can have negative implications for alcohol sales. A 2017 study from the University of Connecticut and Georgia State University found that counties located in medical marijuana states saw a 13-percent reduction in total alcohol (12 percent for beer) sales in the first two years post-legalization.”

Constellation Brands, Inc. STZ' $4-billion investment into Canopy Growth Corp. CGC sets a precedent for cannabis-infused beverages and a new market opportunity. 

Other potential participants in the sector include Anheuser Busch BUD and Diageo Plc. DEO, Azer said. 

2. Beauty And Nutraceuticals

“Health and wellness consumers are beginning to find value and use cases from CBD-based oil extracts/tinctures, topicals and capsules to improve everyday life. We expect to see CBD used as a functional ingredient in non-alcoholic beverages,” Azer said.

Earlier this year, Aurora Cannabis Inc. ACBFF announced plans to establish a partnership with Evio Beauty. The two will collaborate to develop a line of co-branded hemp seed oil cosmetics, in addition to CBD-infused cosmetics.

Other potential entrants include Estee Lauder Co. EL, Nu Skin Enterprises, Inc. NUS and Avon Products, Inc. AVP, Azer said. 

3. Over-The-Counter Pain, Sleep Remedies 

Azer considers this sector to have high incidence levels among young adults who struggle with effective pain management and insomnia. Cronos Ground Inc. CRON announced a joint medical study with Aleafia Health Inc. ALEF to create products used to treat insomnia and daytime sleepiness.

Potential peers within the sleep aid and pain treatment space include Johnson & Johnson JNJ and Procter & Gamble Co. PG, the analyst said. 

4. Pharmaceutical

“Today there is an ever-expanding array of use cases for cannabis as a form of treatment for chronic and severe conditions, shown through increased clinical trials, patents and international acceptance through medical cannabis legalization,” Azer said. 

Medical cannabis company Aphria Inc. APHQF provides cannabis oils for patients and health care professionals. The products are intended to combat an array of different ailments and pain management necessities.

Cowen identified Novartis AG NVS, Merck & Co., Inc. MRK and Eli Lilly And Co. LLY as potential peers in the vertical. 

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