What is the Potential Size of the Legal Cannabis Industry?

In news reports about the potential size of the cannabis industry – and indeed in our own posts on this site – figures are often cited like a value of $22 billion dollars by 2020. These projections, provided by excellent sources like the ArcView Group and Marijuana Business Daily, are safe, conservative numbers based on the likelihood of continued legal expansion and available market data. They are also number based solely on sales of cannabis itself. What, though, is the potential size of the entire industry nation-wide and including ancillary markets? How big can the cannabis industry truly grow to be?

In 2012 the RAND corporation estimated that the total size of the illicit cannabis market in the United States was $40 billion dollars, and we’ve heard a few people say that legal cannabis is simply a matter of moving those illegal sales into legal territory. That, however, is undervaluing the potential size of the market. Black market sales will only ever tell you how many people are willing to purchase cannabis from a drug dealer – it will not tell you how many would potentially purchase it if it were available legally.  According to the Marijuana Business Daily 2015 Factbook up to 30% of cannabis consumers in states with legal cannabis have only purchased the drug legally. As cannabis normalizes the number of mainstream consumers can only be expected to increase. 

The medical cannabis market opens this up even further as every day more studies are scientifically proving the medical efficacy of cannabis for a variety of conditions. Currently 86% of all Americans live in a state that has some form of legal cannabis law according to ArcView (whether CBD-oil only, fully regulated medical, or fully regulated personal use) and in 2014 ArcView estimated that 26 million people were qualified to use medical cannabis under their own states’ laws. As these programs begin to cover more conditions and register more patients, as more physicians become comfortable recommending cannabis as a treatment, and as states like Pennsylvania, Florida, and Ohio pass comprehensive medical cannabis laws the total number of patients will skyrocket. 

While most of the sales data has focused on cannabis sales the ancillary market potentially dwarfs this in size. Mark Twain once wrote, “During the gold rush it’s good to be in the picks and shovels business” and legal cannabis is no different. The long federal prohibition and regional legalization has led to an industry that must not only develop its primary services but must also establish an infrastructure from the ground up. Packaging, shipping, security, consulting, and technology companies, among others, are creating an enormous potential for profit. The MJBD Fact Book estimated that the ancillary market was worth up to three times that of cannabis sales themselves. 

Our own projections for the industry are always rooted in the most conservative industry estimates. Expanding our view to see the bigger picture, however, it’s hard to ignore that with regard to the cannabis industry the sky really is the limit.