LOS ANGELES, CA,/PRNewswire/ - From an investment standpoint, there may be no sector of the legal cannabis industry more intriguing than cultivation and retail. Why? In short, because it’s the one space where the changes created by legalized use tend to create the biggest difference.
Cultivation and retail have been taking place in America and Canada for a very long time. Estimates on just how large the black market for recreational use marijuana is can range as high as $35 billion to $50 billion. However, until 2012, that market was entirely illicit. With legalization, though, there’s every reason to believe that virtually all of that business will transition to the legal marketplace.
So, cultivation and retail is one sector in a very unique place. The demand already exists, there’s no question about that. It’s simply a matter of where and how fast the legal businesses will be allowed to expand to fill that demand.
Dramatic Industry Growth to be Dwarfed by What’s to Come
In 2014, legal cannabis sales in the United States reached $2.7 billion, nearly double the $1.43 billion mark reached in 2013, and more than triple the $800 million sold in 2012. That number, though, is expected to grow even more as 2015 is currently on pace to hit $3.5 billion, good for a CAGR of 65%. Estimates even have sales increasing to some $10 billion by 2018.
Of course, all of this has to be considered in relation to that total figure of $35-50 billion looming over everything. As fast as the current legal market is growing, it’s still just beginning to fill that massive vacuum left by nearly a century of ineffective legal doctrine that forced the industry into the shadows.
A world where dispensaries and grow operations can operate with all the advantages of a fully legal industry is one where the current sales figures are paltry at best. Where most budding industries are forced to speculate about the degree to which their product may or may not catch on, emerging growth cannabis companies in cultivation and retail already know they have a winner.
More Progress in Legalization will Further Legitimize this Major Market
The expansion of legalized marijuana cultivation is expanding rapidly. There are 23 states where medicinal use is legal, in addition to the four others that have legalized recreational use. Canada, additionally, has legal medicinal use nationwide, and stipulations that allow for growers to export their product…provided it’s being exported to a jurisdiction where its sale would be legal.
The result is that marijuana cultivators are able to bring basic principles of the agricultural business into play in a way that they rarely – if ever – have been able to do in the past. The number of legal grows in the United States are growing rapidly, as are their yields, and that should only accelerate as growers are able to expand, consolidate, and begin formulating the sort of new best practices that come with legitimacy.
Marijuana Taxation Means Market Expansion
Despite such substantial growth already, we’ve only scratched the surface of what’s possible. Legalization means a number of rapid changes on the cultivation side that should have far-reaching consequences in the short and long term.
Namely, cannabis is moving from an illicit substance, illegally grown and imported by smugglers, to an agricultural commodity, grown efficiently on large scale while being regulated and taxed by the government. That shift brings with it a variety of changes that should dramatically improve markets for growers and consumers alike.
For starters, the size of grows should expand tremendously. The ability to create economies of scale by expanding operations is nothing new to agriculture, but it is an area where growers had, before now, been severely limited. As marijuana growers start to expand and consolidate, the cost per pound for their yields should fall precipitously, bringing lower prices
Another important development is commoditization. Anyone familiar with commodity markets will realize that they can play a huge part in normalizing prices across regions, protecting consumers from exposure to seasonal price swings, and providing a downward pressure on pricing. On the whole, an efficient market that clearly identifies and prices different strains should play an essential role in normalizing the product reaching dispensaries and smoothing out pricing across the industry, allowing for better planning by businesses and lower prices for consumers.
Finally, the application of agricultural technologies should mean much higher yields for cultivators in legal states. When they were operating in the shadows, growers weren’t in a position to bring to bear the top tier of cultivation techniques on their crop. Now? The cultivation of cannabis is likely to start moving forward in leaps and bounds. Not only can growers anticipate dramatically increased yields simply by applying the best existing agricultural technology, but the development of new techniques and technologies specific to cannabis are likely on the horizon as it transitions into a legal crop.
Source: PRNewsWire for Journalists