An earlier version of this story incorrectly said only recreational marijuana sales are expected to increase 30% in the second paragraph. This version has been corrected to include medical marijuana.
Regulated marijuana sales are growing rapidly in participating states, but with federal legalization still a slow-turning wheel, it could take decades for the industry to fully mature on a national level.
On the back of 11 states passing marijuana-related measures last year, marijuana sales are expected to increase by roughly 30% this year — reaching $5.1 billion to $6.1 billion — and increase up to 45% in 2018, according to industry data provided by Chris Walsh, analyst and editorial director of Marijuana Business Daily. Walsh said he expects another spike in 2019, pushing sales past $11 billion.
But uncertainties still face the fast-growing market. During the Marijuana Business Conference & Expo in Washington D.C. on Wednesday, Walsh said he asked Rep. Earl Blumenauer, a Democrat of Oregon, when he thought marijuana would be federally legalized.
“He said he expects legalization within the next four years. He’s very optimistic about the future of the industry,” Walsh said. “If legalization does happen in the next four years it will be years, if not decades, before the industry evolves into what its eventually going to look like.
“Will it look like the beer industry where a couple big companies own most of the market and there’s a subset of craft breweries?” Walsh asked.
Right now the industry is experiencing growing pains, according to Walsh. Certain markets have become so crowded and competitive it’s gotten tougher for businesses to turn a profit.
The Marijuana Business Daily, which conducts an annual survey of marijuana retailers, wholesale cultivators and infused product manufacturers, said about 55% of those queried said they had reached breakeven or turned a profit within the first year of starting their business. That’s down from 70% who, when polled last year, said they achieved that first-year milestone.
Recreational sales of marijuana ballooned 80% to $1.8 billion in 2016, according to data from Marijuana Business Daily, and in 2017 recreational sales are expected to surpass medical sales for the first time. The industry currently employs anywhere from 165,000 to 230,00 people, according to data from Marijuana Business Daily.
Investments in the industry are increasing in size, frequency and scope. Major institutional investors are still steering clear of the market because it’s federally illegal, but individual investors are showing interest. Last year, private equity firm Tuatara Capital raised an industry record $93 million to invest in marijuana businesses.
But the industry is still relatively young, and Walsh said one of the big questions is what the industry structure is going to look like. Right now states are individually trying to carve out a framework of regulations and industry standards. While federal legalization would undoubtedly be a win, Walsh said the reality is it would potentially be difficult for businesses operating today to then adapt and contend with new federal regulations.
There’s still uncertainty around how President Donald Trump’s administration will approach marijuana enforcement policy under Attorney General Jeff Sessions. In April Sessions appointed a task force to review the Department of Justice’s enforcement policy on marijuana.
While there’s concern around the uncertainty at the federal level, the sentiment in the industry is that it will continue to grow. The federal government might be able to slow it down, Walsh said, but there’s likely no stopping it, he predicted.
How the industry matures and what it looks like if, and when, it’s federally legal is another issue.
credit:marketwatch.com
