Legal Retail Cannabis: US Total Addressable Market

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Legal Retail Cannabis: US Total Addressable Market

Public marijuana companies receive a lot of attention, but what is their real market opportunity? That in large part comes down to what every VC looks at first before making an investment: a given company or industry’s total addressable market (TAM).

Although legalizing recreational marijuana nationally will take time, there are two relatively mature markets that we can use to extrapolate estimates for the industry’s TAM once the drug is legal across the US. These are Colorado and Washington, the first two states to allow sales of retail cannabis in January and July of 2014 respectively. Here’s a breakdown of our process:

Annual Retail Marijuana Sales Revenue – Growth and Current Market Size

  • Colorado: $303.2 million (2014), $577.5 million (2015), $861.6 million (2016), $1.1 billion (2017), $1.2 billion (2018). Source: Colorado Department of Revenue
  • Washington: $323 million (2015, first full year of data), $696 million (2016), $927 million (2017), $1 billion (2018). Source: 502Data, using figures from the Washington State Liquor and Cannabis Board traceability system

State Populations – Growth and Current Size

  • Colorado: 5.35 million (2014), 5.45 million (2015), 5.54 million (2016), 5.62 million (2017), 5.70 million (2018). Source: US Census Bureau
  • Washington: 7.16 million (2015), 7.30 million (2016), 7.43 million (2017), 7.54 million (2018). Source: US Census Bureau

Recreational Marijuana Sales Per Capita

  • Colorado (taking into account a 10% tourist presence in addition to the local population): $52 (2014), $96 (2015), $141 (2016), $177 (2017), $194 (2018).
  • Washington (taking into account a 5% tourist presence in addition to the local population): $43 (2015), $90 (2016), $118 (2017), $128 (2018).

As for how we reached the industry’s TAM, here’s our calculation:

#1 – The rounded average of Colorado and Washington’s retail cannabis sales per capita was $160/person as of 2018 (the exact number is $161/person). With a US population of 327 million in 2018, the US total addressable market for retail marijuana is therefore roughly $50 billion. We understand there are other states where recreational marijuana is legal, but these are the best examples as they have the longest retail marijuana sales histories. Also, we have not adjusted for age since 24% of Colorado/Washington inhabitants are under 18, exactly the same as the national average.

#2 – A $50 billion market opportunity for the legal marijuana industry is reasonable on a national scale. US sales of recreational and medical marijuana reached $5.8 billion and $4.6 billion last year respectively, according to New Frontier Data. That was with recreational cannabis legal in just 10 states, and medical cannabis legal in 33 states and the District of Columbia. Two of those ten states, Michigan and Vermont, have yet to even implement sales.

Moreover, there are many other populous US states that haven’t legalized retail marijuana yet, but present huge market opportunities, such as New York and New Jersey. Another, Illinois, just became the first state to legalize recreational marijuana sales through its state legislature, also making it the 11th state to legalize adult-use of the drug. By comparison, Colorado and Washington have populations of just 5.7 million and 7.5 million respectively, versus 12.7 million in Illinois and a combined 17.5 million in New York and New Jersey. They are all tourist hubs as well.

#3 – Earlier this year, Canadian cannabis company Aphria’s chairman Irwin Simon also said on CNBC that he thinks the US cannabis market could reach $50 billion if all states legalize marijuana. If he and we are right, that would match the $50 billion-a-year dietary supplements industry, or almost double the US spirits market ($27.5 billion).

In sum, our analysis of recreational marijuana sales shows it could be a $50 billion national market opportunity. We think that’s realistic and could even be much larger when accounting for medical and CBD sales as well. As for when we get there, that will come down to whether states continue to fully legalize marijuana individually over time, or if Democrats win big in 2020 and legalize cannabis nationally sooner.