Morningstar - Winter 2019 - 29

EXHIBIT 2

Centers for Disease Control. The Pew Research
Center collected survey data that shows
that legalization support has risen from 16%
in 1969 to 62% in 2018 ( E XH I BI T 3 ). These trends
represent growing acceptance of cannabis.

Legalizing It Only four states continue to prohibit all medical, recreational, and
low-THC/high-CBD cannabis products.
Recreational and Medical Cannabis Legal
Low-THC/High-CBD Legal

Medical Cannabis Legal
All Cannabis Illegal

Massive Growth Is Coming

As we've mentioned, we think legal U.S.
recreational and medicinal cannabis have penetrated just 8% and 21% of their estimated
markets, respectively. This leaves significant
room for growth.
The recreational cannabis market is larger than
the medical market both at its current size
and at its long-term estimate. The current estimate
of the legal recreational market is about $5.4
billion,2 primarily dominated by the western U.S.
where recreational legalization is more common
and distribution more developed. Our robust
growth forecast is based on three pillars: the six
states we expect to legalize recreational use
by 2030 and three states (Michigan, Vermont, and
Illinois) that recently passed legalization
and will have expanding commercial operations;
conversion of black-market consumers; and
conversion of nonconsumers.
We forecast that roughly 10% of the U.S.
population in 2030, or about 35 million people, will
represent the market for the legal recreational
cannabis market.3 This translates into nearly
7,000 tons of annual cannabis demand. Assuming
an end-user price of $10 per gram4 in constant
dollars, we estimate the total market to be
more than $68 billion-12 times larger than it is
today and representing about 25% average
annual growth.
Medicinal Market Will Nearly Quintuple

Although medical cannabis legalization has been
a trend in the U.S. for years, we still see massive
growth ahead. Current market estimates for
the U.S. medicinal cannabis market are roughly
$2.6 billion to $3.3 billion. We estimate the

2
3
4
5

Source: National Conference of State Legislators.

Medical Cannabis Legal
All Cannabis Illegal
Low-THC/High-CBD Legal Recreational and Medical Cannabis Legal
market in 2030 to be nearly 5 times larger
or roughly 20 million to 105 million people, will be
at more than $14 billion, which would represent
consumers in the legal medical cannabis market.
more than 10% average annualized growth.
The range of our estimates is wide. This is due to
Our forecast may underestimate the market size
the significant differences in estimates for
pain severe enough to necessitate medication.
potential for medicinal cannabis, given
insufficient scientific research to gauge the full
In addition, pain is subjectively determined
by the individual. We further reduced the total
medical benefits. However, anecdotal evidence
of the benefits to help treat symptoms such
number of pain patients by adjusting for each
as pain and nausea, as well as growing calls for
state's medical cannabis access.
additional scientific studies, gives us confidence
and serves as the basis for our forecast.
Despite the potential demand for helping treat
pain, health insurance largely does not cover
Our approach to the medicinal segment focuses
medical cannabis. Researchers estimate that 17%
on estimating the total market by narrowing down
of medical expenditure costs related to chronic
the U.S. population in 2030 to pain patients who
pain are covered by patients themselves.5
are likely to use cannabis as treatment. Based
on our estimates for the pain market, we think that
Over the medium term, it's likely that patients
will need to continue to pay for medical cannabis
roughly 6% to 30% of the U.S. population in 2030,

2018 Marijuana Business Factbook.
We've constructed our forecast based on demographics and usage, starting with the entire U.S. population in 2030, then narrowing the group by age, frequency of usage, and residence.
Based roughly on market prices in the Western U.S. today. We expect U.S. production to largely come from that region.
Institute of Medicine (U.S.) Committee on Advancing Pain Research, Care, and Education. 2011. "Relieving Pain in America: A Blueprint for Transforming Prevention, Care, Education, and Research."

global.morningstar.com/Morningstarmagazine

http://global.morningstar.com/Morningstarmagazine

Morningstar - Winter 2019

Table of Contents for the Digital Edition of Morningstar - Winter 2019