Jan 12, 2022
Despite facing considerable pandemic related headwinds, 2021 was a banner year for the cannabis industry.
In prior years, Canadian Licensed Producers (LPs) was the main topic of discussion in end of year, forward looking articles that we published on the cannabis industry. 2021 has been a year of change for the global economy and the cannabis sector was not immune to this.
International cannabis markets were a main topic of discussion in 2021 and we expect this aspect of the industry to be even more significant in 2022. From the European Union (EU) to the United States (US), we are closely following how certain international markets continue to attract attention.
2021 was a banner year for the US cannabis industry and we are the most bullish on this burgeoning market. During the year, there was an increase in the number of states that reported to have generated more than $1 billion of sales of medical and recreational cannabis. We consider this amount of annual cannabis sales to be a milestone for any state and expect to see additional states join the $1 billion sales club in 2022.
Today, we want to provide insight on the potential of certain international cannabis markets in 2022 and believe our readers should be aware of this vertical of the industry. The regions we will cover are the EU, Latin America, and the US. We believe these cannabis markets are in the early innings of a major growth cycle and will monitor how they advance in 2022.
The US Cannabis Industry is Becoming a Global Leader
When it comes to the US cannabis market, there are two key factors at play. The first is the number of states that have legalized some form of cannabis and the second is related to the passing of pro-cannabis legislation.
During the fourth calendar quarter, US cannabis stocks came under heavy pressure after the SAFE Banking Act was not included in the National Defense Authorization Act (NDAA). We believe the pullback was overdone and will monitor how the trend continues in the new year.
In regards to the factor that is related to the number of states that have legalized some form of cannabis, Kansas, South Carolina, Nebraska and Minnesota, are some of the states that are working to pass pro-cannabis legislation in 2022 and believe our readers should be aware of these.
In 2021, recreational cannabis legislation was approved in Connecticut, New York, New Mexico, and Virginia. Earlier this year, we were surprised to learn that the governor of Alabama signed legislation to legalize medical cannabis. these markets are expected to generate approx. $5 billion of annual sales in aggregate and we are bullish on this trend.
Several leading US multi-state operators (MSOs) are generating more than $250 million of revenue per quarter. This amount is considerably higher than what is being reported by leading Canadian LPs and we expect US operators to outperform Canadian operators in 2022.
Is Mexico the Jewel of the Latin American Cannabis Industry?
During the last year, the Latin American cannabis industry reported impressive advancements and is an international region that we are closely following. From additional countries legalizing cannabis to a larger amount of cannabis that is being exported to the EU, the Latin American cannabis industry recorded important milestones in 2021.
Mexico is considered to be the most attractive cannabis market in Latin America and we have noticed an increase in the number of companies that are focused on it. Although 2021 was a roller-coaster type of year for Mexico’s cannabis industry and was highlighted by the Supreme Court vetoing several aspects of legislation to legalize recreational cannabis, we are favorable on how the market has advanced.
Mexico is the second largest market in Latin America and has a population that is close to 130 million people. According to IMS Quintiles, approx. 11.7 million people in Mexico have been diagnosed with conditions that are treatable with medical cannabis. It is only a matter of time until cannabis is legal in Mexico and we expect this to serve as a significant growth catalyst.
One of the reasons for our bullish view on the Mexican cannabis market is related to the lack of saturation. There are a few companies that have actually been executing on a growth strategy in Mexico and we expect these early movers to capture a significant amount of market share.
Khiron Life Sciences (TSX Venture: KHRN) (OTC: KHRNF) is executing on a strategy in Mexico where it would leverage its education partnership with Tecnologico de Monterrey. We consider this to be an important differentiator when compared to other companies that are focused on Mexico’s cannabis market. We believe that Khiron is well position to capitalize on Mexico and are favorable on the strategic relationships the company has formed so far.
Over the next year, we expect Colombia and Mexico to be two of the fastest growing Latin American cannabis markets and will monitor how companies like Khiron are able to capitalize on this trend.
Germany Will Play a Key Role in the Growth of the EU Cannabis Industry
Last month, Germany announced a major milestone and reported that its three political parties have agreed to regulate the distribution and sale of recreational cannabis. With a population that is north of 80 million, we expect the country to have a significant impact on the entire EU cannabis industry and are bullish on the long-term opportunity that is associated with it.
The agreement between the three political parties took place shortly after Luxembourg announced plans to allow each household to cultivate up to four cannabis plants. We are bullish on the direction the EU cannabis industry is heading and will be monitoring how the sector advances in 20222 and beyond.
In early 2022, we expect to learn more about Germany’s plans for a recreational cannabis industry and believe that any positive development would be a catalyst for the entire cannabis sector.
Although most of the companies that are levered to the EU cannabis industry are Canadian LPs, we have noticed an uptick in the number of US MSOs that are focused on markets like Germany. In 2022, we expect US operators to take market share from Canadian LPs and this is a trend that our readers should be aware of.
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