The verdict is in. The marijuana market is alive and well, despite an economy that is sputtering. Karson Humiston, CEO and founder of Vangst, which runs a cannabis industry-centric job recruiting site, states it plainly: “Take a look around. People want to get out of their old-school, dying industry, and they want to move into cannabis. This is it. Now is the moment to get involved, because it’s never going to be this small again.”
And the data supports this assertion. Financesonline.com projects the expected global market value of legal marijuana by the end of 2025 to exceed $146 billion, with just three states–California, Colorado, and Michigan, leading the way with combined revenue of nearly $7 billion. And as more and more states hop on the legal marijuana train, forecasts are increasingly rosy. California may be a microcosm of the future of legal marijuana. A recent report forecast that “legal cannabis spending in California will grow at a 19% compound annual growth rate (CAGR) to $7.2 billion in 2024, 40% larger than Canada and253% larger than the next-largest state.”
Moreover, a report by New Frontier Data found “After close to a decade tracking, analyzing and modeling legal cannabis market shifts, we continue to see and report with confidence significant economic opportunities in the U.S., as legal market spending experiences consistent year-over-year double-digit growth.” And as Forbes reports, “As more states legalize and cannabis consumption increases, investor confidence has also grown” with May 2021 fundraising alone “amassing $6 billion.”
There are, however, significant challenges to the future of legal recreational marijuana. The first, and most pressing issue, is that marijuana is still illegal at the federal level. Despite a recent plea to Attorney General Garland to decriminalize marijuana by taking it off the list of controlled substances, there remains staunch opposition in D.C. Chris Walsh, chief executive officer and president of MJBizDaily, points out the painful truth: “I’m still doubtful that we’re going to see any significant federal reform next year … including in banking.”
There are significant consequences to this federal marijuana prohibition, particularly the classification of cannabis as a Schedule I substance. As the Center for American Progress states, “This classification also attaches serious criminal penalties for criminal offenses and can trigger mandatory minimum sentences” because it intentionally links marijuana with heroin, fentanyl, cocaine, and ecstasy. By keeping marijuana as a Schedule I drug, tension is set up between the federal government and many states where marijuana is either medically or recreationally legal.
Another significant hurdle is the growth of the illegal marijuana market, even in states where marijuana is fully legal. In Oregon alone, the “proliferation of industrial-scale marijuana farms has gotten so bad and so brazen that Jackson County Commissioners asked Gov. Kate Brown to send in the Oregon National Guard ‘to assist, as able, in the enforcement of laws related to the production of cannabis,’” according to Army Times. In California, nearly half of the revenue is captured by the illegal marijuana market.
Much of this has to do with excessive taxes and fees marijuana dispensaries and growers have to pay to participate in the system of legal marijuana sales. Moreover, regulatory hurdles often require legal counsel, which can escalate costs rapidly. This is connected intimately to the federal prohibition on marijuana because marijuana businesses, unlike their counterparts in other business sectors, cannot deduct many expenses from their federal taxes.
As potguide.com explains, “Because cannabis producers, retailers, and processors are not allowed to deduct many of their expenses from their taxable income, they are taxed at a much higher effective rate than other similar types of businesses.” The state taxes, regulatory hurdles and fees, in conjunction with federal prohibition put marijuana legal businesses at a fiscal disadvantage, and in order to offset these costs, they pass them on to the consumer. The consumer has a choice: pay up, or buy on the illegal market. For people on the lower economic rung, the choice is often all too apparent.
Another issue is the fact that corporations are increasingly taking over the legal marijuana trade. Investopedia states that in 2019 alone, marijuana companies raised $116.8 billion in sales. And corporations are not likely to let this opportunity pass them by. President and CEO Derek Peterson of Terra Tech, a California-based company that makes hydroponic greenhouse equipment for both traditional and marijuana growers, puts it this way: “We’re a mass-produced society, from the food we eat to the television we watch. Ultimately, big alcohol or big tobacco is going to come into this space. I just can’t imagine that won’t happen.”
A perfect example of corporate takeover happened in Oakland, where local dispensaries were muscled out by Have a Heart, a dispensary chain based in Seattle. “It’s a classic story of gentrification,” said Amber Senter, a businesswoman and marijuana activist, who claimed the dispensary chain was “taking advantage of opportunities that were not made for them.” Senter is getting at an ethos that is pervasive in the marijuana community, which is largely, pardon the pun, “grassroots.” As USA Today writes, “The idea of Big Marijuana runs contrary to the counter-culture attitude of many marijuana industry insiders, especially those who honed their specific strains and growing techniques underground.”
For marijuana to move forward in a healthy, fair, and transparent manner, these issues will need to be worked out, or they may create significant problems that undermine the entire movement.
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