Blog : MJ Update: Market Set to Grow 68% This Year

by Ed Zwirn on April 17th, 2014

Also, snowbirds may soon hit new highs (see below):

It is estimated that Americans spend from $18 billion to $31 billion each year getting stoned on weed. Not surprisingly, the vast majority, all but $1.5 billion, of this trade is illicit.

But the money being made through legal marijuana sales (for medicine or recreation or both) is set to expand geometrically over the next five years, according to a report by ArcView Market Research.

According to the report, which came out today, the U.S. legal MJ market value is now assessed at $1.53 billion, comprising all states that have active and open cannabis sales to people legally allowed to possess it under state law. The research projects this market will expand 68% to $2.57 billion by year end.

Going out five years, the national MJ market is expected to hit $10.2 billion, a more than 700% increase over the current number.

Part of this gain is expected to come from increased demand in existing state markets. More liberalized MJ laws in Washington and Colorado are projected to add an overall $708 million to revenue tallies in 2014 alone. California, which at this point allows only medical MJ, remains the largest state market, at $980 million, and it can scarcely be imagined the level to which this would increase were the state to go "recreational," which ArcView says ought to happen by 2017.

Beyond California, the report predicts that another 13 states will allow adults to legally buy and burn weed within the next five years. These are: Alaska, Oregon, Rhode Island, New Hampshire, Vermont, Maryland, Hawaii, Maine, Missouri, Massachusetts, Nevada, Arizona and Delaware.

The report also contains good news for consumers (albeit maybe not so hot for producers): The retail legal marijuana price has been under downward pressure from increased competition between retailers and from falling production costs as cultivators improve their processes and take advantage of economies of scale. Colorado has seen the price of legal MJ fall almost 30% in the last two years, although this is likely to reverse as recreational use (which only became legal this year) skyrockets, resulting in increased demand greatly outstripping short-term supply.

"Opportunities for investors and businesses are accelerating as more state medical markets come online, the scope of legal consumption increases to include Adult Use, and technological advances give rise to new products and services," the report says.

The fastest opportunity to make money on MJ is some states centers on wholesale cultivation, while in other states integrated cultivations and dispensary operations are taking the lead.

For those wary of federal enforcement risk, the report points to "ancillary businesses" supplying tools of the trade, which are one step removed from the cannabis plant itself and so carry less criminal exposure. On the other hand, these businesses usually take longer to give a return on investment and also face customer attrition in the event that any of their clients get busted.

In addition, MJ investors need to watch out when investing in a sector that could be victimized by its own success. "Businesses face greater competition within the legal market as more participants are attracted to the industry," ArcView warns.

Stoned Out Senior...

Many of my neighbors out here in the mountains of New York, where the winters can get brutal, are by design only part-timers: The Snowbirds, as we call them here, migrate to Florida in the winter and come back north around late spring.

I guess it is in part due to my denial that the aging process has any impact upon me in particular that I tend to feel superior to the Snowbirds. Retirement in Florida is, after all for old people.

But a legislative initiative down south may soon have me rethinking my retirement plans. On Nov. 4, Florida voters will be asked to vote on a state constitutional amendment that would make the state the first former Confederate state to legalize some pot use.

But approval for Florida medical MJ will cross a line at least as significant as the Mason-Dixon Line. Getting back to my Snowbird neighbors, I cannot think of one that doesn't have a prescription for something. The active marketing of medical MJ to prescription-savvy Florida seniors may well transform the ambience at retirement home rec centers.

As the baby boomers (except me) submit to the ravages of the aging process, this could greatly enhance legal MJ's stats among special interest group lobbies. Social Security has rightly been called the third-rail of U.S. politics: Mess with these benefits and you face determined opposition from old people with nothing better to do than vote. Once granny and her friends realize that MJ is a bit more fun than the other medicines in her purse, the joint will be hard to put out, much like the irrepressible Florida sunshine.