- CNBC's Jim Cramer surveys the pot craze as Canada prepares to legalize cannabis nationwide.
- The "Mad Money" host flags the companies he thinks will be long-term winners in the space.
Canada's full-fledged legalization of adult cannabis use will be a "watershed" moment for the marijuana industry, and the momentum will extend far beyond the official legalization date, CNBC's Jim Cramer said.
"That's right, when you look at every industry where pot could potentially compete, there might be as much as a half a trillion dollars in sales that are going to be disrupted, everything from carbonated beverages, beer, sports drinks, tea, coffee, tobacco, [and] snacks [to] all sorts of medications," he continued.
Cramer's $500 billion estimate came from speaking with business leaders in the cannabis industry, many of whom agree that marijuana has the power to disrupt major industries including alcohol and pharmaceuticals.
"I believe we'll soon see studies showing that it's a better, safer way to fall asleep than most sleeping pills," he said. "I bet we'll see studies demonstrating that it does more to reduce swelling than pretty much anything else on the market. It might be an alternative to tobacco. It certainly is an alternative to an epidemic of opioids."
On Friday, Bruce Linton, the co-founder, chairman and CEO of high-profile Canadian cannabis producer Canopy Growth, told Cramer that $500 billion would be an "accurate" estimate for the global market disruption caused by cannabis.
And while $500 billion may sound large, it's not a huge market capitalization for an entire sector, Cramer said. For comparison, a major international pharmaceutical coalition estimates that the global pharmaceutical market will reach nearly $1,430 billion by 2020.
"There are really only a handful of companies with the scale to take advantage of the opportunity" in cannabis, the "Mad Money" host said. One such company is Canopy, backed by a several-billion-dollar investment from alcohol distributor and Corona parent Constellation Brands.
"Constellation's given Canopy a $4 billion war chest so it can take the Canadian cannabis industry by storm starting tomorrow," Cramer said.
But investors shouldn't buy shares of Canopy or Constellation — which Cramer said "may be the cheapest cannabis stock of all" at these levels — ahead of Canada's legalization, he warned.
And those examining other pot plays might want to steer clear of them altogether for the time being, Cramer said.
"Everything related to the Canadian cannabis space has already run up dramatically and I'm worried that many of these companies aren't even worth speculating on," he said. "I think there could be a lot of disappointment once it turns out that legal marijuana is a lot less profitable than illegal marijuana."
When the excitement from Canada's legalization blows over, though, investors can start to do some careful stock-picking, Cramer said.
"Once legalization goes into effect and [the] cannabis cohort cools when there's no instant pot at the end of the rainbow, I think Canopy will be the cannabis stock that the big institutions reach for. If you don't own it, I recommend waiting for it to go a tad lower — maybe you can get it below $50, which is a good price," he suggested. "Right now, the entire group is overheated, as we saw today. But as they come down, remember that Canopy and Constellation [are] the ones to buy."
Shares of Canopy Growth hit a new 52-week high on Tuesday on news that it would take over U.S.-based hemp company Evergreen before falling 6.82 percent into the close. Constellation Brands' stock rose slightly, ending the day up 1.45 percent.
Disclosure: Cramer's charitable trust owns shares of Amazon.