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It's nice being No. 1. And that's where Canopy Growth (NYSE: CGC) ranks in the cannabis industry in terms of market cap and market share in the key Canadian adult-use recreational market.
It isn't easy staying at the top, though. That's especially true in a fast-changing market like cannabis.
Where will Canopy Growth be in 10 years? There's no way to know for sure, of course, but here's a prediction of what the future could hold for this top cannabis producer.
Image source: Getty Images.
A few assumptions
Let's first make a few assumptions about the global cannabis industry. The most critical assumption is that the U.S. will revise federal laws in a way that allows Canopy Growth to enter the U.S. marijuana market.
This seems like a pretty safe bet to happen at some point within the next few years. Public support among Americans for marijuana legalization is at an all-time high. Passage of legislation to change federal marijuana laws looks like a slam-dunk in the U.S. House of Representatives. The votes are probably there in the Senate, as well, although Senate Majority Leader Mitch McConnell could prevent the bill from coming to a vote on the Senate floor.
President Trump has expressed his willingness to support changes to federal laws on marijuana. All of the current Democratic presidential candidates, with one exception, support the legalization of pot. The one holdout is former Vice-President Joe Biden, who currently leads in national polls for the Democratic presidential nomination. But there's probably a pretty good chance that Biden wouldn't oppose a measure that left marijuana legalization up to the states.
Another key assumption is that the U.S. Food and Drug Administration (FDA) establishes regulations for cannabidiol (CBD) products that aren't too burdensome for the industry. The FDA is in the process of gathering information to help in this process, recently conducting a public hearing that included input from a wide range of participants.
Shifting away from the U.S., it's important that European countries that have already legalized CBD and medical cannabis don't put too many obstacles in the way of a robust industry emerging. Germany already has laws in place that are fostering a rapidly growing medical cannabis market. It's probably not a bad assumption that other European countries will learn from Germany's success.
Finally, I'd count on a shakeout in the Canadian cannabis industry within the next two or three years as supply catches up with capacity. But I also expect that Canopy Growth will be one of the companies to emerge relatively unscathed, while lots of small cannabis producers get gobbled up or go out of business. The dust should be settled from this shakeout well before our 10-year window winds down.