Seven Things Everyone Should Know About Legal Cannabis

August 5, 2017

Brightfield Group has come up with the following must-know fact list for those looking to invest, start a business, or simply expand their knowledge of the legal cannabis industry.

1. The demand for medical and recreational cannabis is demonstrably enormous.

Demand for both medical and recreational cannabis is massive and growing, with even conservative estimates foreseeing a multi-billion dollar industry emerging in the wake of legalization. In 2014, Colorado took in an impressive $680 million in revenue from medical and recreational cannabis sales, according to a Brightfield Group analysis of data released by the Colorado Department of Revenue. This added approximately $60 million in tax revenues for a state with a population of just over 5 million, or about 1.6% of the total population of the U.S. In most states, however, the industry still quite underdeveloped. Countless opportunities exist for growth and greater efficiency from top to bottom, and each state has holes in their supply chains that offer opportunities for entrepreneurs, while other areas are saturated.

2. Marijuana is still illegal according to Federal Law.

Regardless of what state you’re in, federal law remains “the supreme law of the land” according to the U.S. Constitution. The U.S. government has listed marijuana as a Schedule I controlled substance, alongside heroin and LSD, as a drug with high potential for abuse and no accepted medical applications. Although the Compassionate Access, Research Expansion, and Respect States (CARERS) Act introduced in the House and the Senate in March 2015 calls for laws pertaining to medicinal cannabis to be permanently delegated to the states, the fate of the bill remains uncertain. If passed, it would also allow for an expansion of research into the medical applications of cannabis, potentially creating a wave of demand in the health care and pharmaceutical industries. Until this happens, however, the multi-billion dollar cannabis industry remains illegal, period.

3. Investment is poised to surge into the industry in massive quantities.

Despite the risks, some entrepreneurs have shown a willingness to invest millions of dollars into the cannabis businesses. At the center of the current limelight is Privateer Holdings, a venture capital firm that deals exclusively with cannabis companies that in April raised $75 million in funding - the biggest private capital raise ever for the legal cannabis industry. Another investment firm, Tao Capital Partners, in January announced that it would fund MJ Freeway, an industry-leading software company that specializes in inventory tracking specifically for cannabis businesses. Entrepreneurs are gearing up to take advantage of changing laws and attitudes that are making investment far more attractive than in the past. Delivery applications and social media sites dedicated to the cannabis industry are raising millions in equity, connecting users to dispensaries, startup companies, and each other. Many individuals, investors, and businesses see legalization as inevitable, and are taking full advantage of this opportunity to get ahead of the game.

4. Market conditions vary significantly across state and local lines.

Some states have clearly defined regulations and closely monitor the industry, while in others a lack of clear direction leaves the industry in a legal gray area. It has also caused instability in the market itself. In Washington, for example, the plant can be grown outdoors, unlike in Colorado. This, combined with a surge of illegal imports from California and Oregon, led to a massive crop glut last year that drove prices down to the breaking point for many growers. Significant differences in taxation have made Washington growers simply unable to compete with Oregon in terms of pricing, and many are being pushed out of the market. Additional regulations governing whether dispensaries can or cannot be for profit, whether supply chains must be vertically integrated, and caps on the number of permits per state can make all the difference in the success or failure of a business.

5. More than 90% of sales come from California, Colorado, Washington, Arizona, Michigan, and Oregon.

While 23 states and DC have legalized recreational and/or medical marijuana, half a dozen key states control the overwhelming majority of the national market. California, as the biggest state in the U.S. by far, is the clear industry leader in legal cannabis. The market in the Golden State topped $1.1 billion in 2014, up from just over $980 million the previous year. Colorado and Washington came in second and third, respectively, with nearly a billion in combined sales of both medical and recreational cannabis. Many of the remaining states that have taken steps towards legalization are not yet open for operation or not allowing for a dispensary system. Recreational cannabis legalization in Oregon, for example, will not go into effect until July of this year.

6. Smoking is becoming less common, as more consumers of cannabis are switching to edibles and concentrates. 

Even the staunchest cannabis enthusiasts are hard pressed to argue in favor of inhaling smoke into their lungs. Not surprisingly, a decrease in the number of cannabis smokers has coincided to some degree with the nation-wide fall in tobacco consumption. Meanwhile, the consumption of cannabis edibles (of which there is a truly shocking variety) as well as concentrates, which is a blanket term for any product created via an extraction process, has been steadily on the rise. This has opened up a whole new branch of the cannabis industry, employing all the players and processes involved in food production, marketing, and distribution. This gives the legal industry a decisive edge over the black market, increasing the value proposition for dispensaries and creating numerous market opportunities for companies that manufacture smokeless cannabis products.

7. New technology is breaking into the industry from every direction.

The intersection of cannabis and technology is a niche that is quickly being filled by waves of cutting-edge innovation. Individuals with prior experience at some of the nation’s leading tech companies are currently scrambling to create a breakout product for an enormously lucrative industry that is on the brink of legitimacy. New technology for product testing, smokeless consumption, social media sites, delivery services, supply chain and inventory tracking, edibles production, and cannabis commodity exchanges are just a few examples of the vast array of products and services that are poised to take flight alongside the legal cannabis industry. The wealth that will be generated is difficult to estimate, but it is widely agreed that an unprecedented boom is on the horizon.