The United States is a vast and growing marijuana market, both for illicit vendors and, increasingly, legitimate producers. Ever since 2012, when Colorado and Washington took the plunge, U.S. states have been legalizing cannabis at a rapid pace. Although recreational cannabis is only legal in 10 states right now, medical marijuana is legal in 33, making the legitimate U.S. market a sizable one. And with many more states considering legalization, it’s set to grow larger.
As an early adopter of cannabis decriminalization, Canada saw the rise of a vast home-grown cannabis industry that already supplies a significant percentage of legal pot worldwide. One of the main beneficiaries of this is Aurora Cannabis (TSX:ACB)(NYSE:ACB), which has a large international footprint that includes facilities North America and Europe.
This week, Aurora announced that it would be entering the U.S. market with an ambitious expansion plan. If successful, this could prove a big revenue booster for the company, as the U.S. marijuana market is expected to grow at 34% CAGR and reach $146 billion by 2025. To understand how this will impact Aurora’s fortunes, we need to look at how legalization is shaping up in the U.S.
Hemp legalization As previously mentioned, 10 U.S. states have already legalized recreational cannabis, while 33 more have legalized medical marijuana. However, a major federal-level law has changed the hemp landscape even more radically. The U.S. Farm Bill, passed December 12, is a wide-reaching piece of legislation that legalizes hemp nation-wide, paving the way for cannabis growers to enter states that have not legalized cannabis. This is a game changer for producers like Aurora, because they have the capacity to grow not just Marijuana but also THC-free hemp.
Impending state legalization Another factor that could improve Aurora’s fortunes is more state legalizations. This past year, there have been many ballot initiatives concerning drug legalization in the U.S.
The state of Denver recently considered a motion to legalize magic mushrooms, while cannabis reform proposals are being considered in New Hampshire, New Jersey, and Massachusetts. Should initiatives in these states prove successful, they’ll increase the U.S. market size substantially.
Aurora’s Hempco deal Aurora is apparently aware of the sea changes occurring south of the border, as it lent money to (and increased its interest in) Hempco, a major hemp producer. Although Hempco is a Canadian company, it’s strategically positioned for U.S. sales, as it mainly produces hemp and CBD products, which are legal in the U.S.
Aurora’s recent agreement with Hempco allows it to increase its stake to 55%, essentially paving the way for a full buyout. A recent Aurora press release noted Hempco’s strategic value in light of U.S. hemp legalization, which points to the company being pivotal to Aurora’s U.S. expansion plan.
Should that plan be successful, the end result could be a massive sales boost for Aurora — and a boon to its shareholders.
Fool contributor Andrew Button has no position in any of the stocks mentioned.
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