Bigger Than Beer...
Canadians love their beer... a lot.
Like many Americans — my introduction to Canadian beer was born of the McKenzie brothers.
Bob and Doug McKenzie — Rick Moranis and Dave Thomas — swilled Canadian beer and talked hockey, donuts, and — well — beer. It was a fitting tribute to Canadian stereotypes, complete with finishing sentences with “Eh”, pronouncing about as “aboot”, and calling each other hosers.
But it all came back to the fact that Canadians love sitting around and drinking beer. Molson, Labatt Blue, and Moosehead are as iconic in Canada as Gordie Howe, Maurice Richards, and Wayne Gretzky. It’s part of the national identity.
The average Canadian drinks 63 liters — or almost 17 gallons — of beer per year. 80% of Canadians drink booze, and over half drink beer.
That works out to a $9 billion-a-year industry.
My own experience with Canadian beer drinking is rather limited, and based on two investment trips: one to speak at the Money Show in Toronto and another to visit an Ontario factory that produces what will be an even bigger product than beer (more on that later).
I’ll attest to the love of beer in Canada. On each trip, I drank with happy Canucks who took great and humble pleasure in drinking me under the table with ease...
But one industry is threatening to be even bigger than beer in Canada. I’ll give you a hint, it’s not hockey...
It’s the legal cannabis industry, and it could actually be bigger than beer in the next year or so.
As I mentioned, beer in Canada is around $9 billion a year. The way legal cannabis is going, Canadians could be buying $10 billion in marijuana-related products a year.
Retail sales of cannabis products could be much bigger. “This is a 10-year, bull-market run. You’re creating a new legitimate legal business for what is going to be a $10-billion to $20-billion a year market,” according to Michael McLellan, a consultant to the medical marijuana industry.
That estimate has a catch though…
Pot shops have to be able to operate on the same rules that typical businesses do.
If they can — and I think they will — they can compete with almost any business out there. Just look at the average revenue per square foot of a traditional business versus a cannabis company…
Consider this: the most productive retail space in Canada is an Apple Store, with average annual sales of $7,200 a square foot. This compares with $2,961 a square foot at a Lululemon retail store and $1,490 a square foot at Costco.
At the other end of the spectrum, the comparable figure for Sears, Dollarama, and Canadian Tire is less than $250 a sq. ft. In the U.S. states where selling marijuana is legal, sales average $975 a square foot.
These are impressive numbers for any business. Once full-scale legalization kicks in — which should be soon, as Prime Minister Justin Trudeau promised to introduce a bill to legalize recreational cannabis next spring — every legitimate Canadian marijuana stock will go crazy. I have several in my Crow's Nest portfolio that have already hit triple digits, and will keep running.
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The U.S. market shouldn’t be very far behind.
A recent survey has shown that support for marijuana legalization in the U.S. has reached 60% — the highest level ever recorded.
Marijuana use is currently legal in four states and the District of Columbia, and legalization measures are on the ballot in five more — California, Arizona, Massachusetts, Maine, and Nevada — this November. As a result, the percentage of Americans living in states where pot use is legal could rise from the current 5% to as much as 25% if all of these ballot measures pass.
If California passes, I think we’ll see a quick domino effect.
It will happen.
My Crow's Nest readers have already seen the magic in action:
- 270% on a Canadian cannabis grower
- 215% on a cannabis capital group
- 100% on a U.S. cannabis firm (in a few hours)
- 93% on a medical marijuana firm
- 73% on a Canadian cannabis producer
I currently have six open positions in the sector, with several more coming down the pike over the next few weeks. Get in now, or you will be looking back on this opportunity years from now, asking yourself why you didn't take advantage of such an obvious and historic opportunity.
Jimmy is a managing editor for Outsider Club and the Investment Director of the personal finance advisory The Crow's Nest. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he's brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor's page.