Published: July 15, 2015 1:36 p.m. ET
If all 50 states were to fully legalize pot, it could generate big sales
That’s according to GreenWave Advisors, an industry research firm that tracks retail sales in the four states and the District of Columbia that have already legalized it. Those markets have experienced explosive growth since marijuana was approved, demonstrating the strong opportunity for industry players and state governments eager to gather the tax on sales and replenish their coffers.
The sale of recreational marijuana in Washington began July 8, 2014, and has steadily grown to $31.9 million in June from $2 million in that first month, or a total of nearly $180 million for the first 12 months, according to an analysis by Marijuana Business Daily of data from the state’s Liquor Control Board.
The Washington market is catching up on recreational sales in Colorado, which began in January 2014. Colorado state retailers brought in about $305 million in sales in 2014, according to GreenWave Advisors.
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Analysts attribute the growth in sales to a variety of factors, primarily the conversion of a long-existing black market to a regulated one.
“We’ve never had an industry that was a black market industry of this size,” said Leslie Bocskor, founder of cannabis industry consulting firm Electrum Partners.
Steve Gormley, chief business development officer at OSL Holdings, Inc. (OSLH), a company focused on consumer advocacy and social activism, compared legalization to the repeal of alcohol prohibition in 1933.
“As was the case in advance of the federal repeal of alcohol prohibition, there is a landscape of opportunity in states that allow for the use of recreational or medical marijuana,” Gormley said.
Analysts identify California as the watershed state that would lead to the rest of the country approving full legalization. State voters will decide on the issue on the November 2016 ballot.
“California is the big kahuna,” said Matt Karnes, founder of GreenWave Advisors.
Gormley agreed. “…It is a tremendous market, with its proximity to Washington and Colorado, there is an advantage from a revenue standpoint of legalizing recreational, and we will start to see other states moving rapidly in the same direction.”
As the recreational industry grows, there will be increasing opportunities for businesses to enter the market.
“This is an industry that is allowing people to come in and start businesses that they otherwise might not have been able to start,” Bocskor said. “The events and pressures—pressure for regulation of markets, federal legality versus state legality—create a unique business environment never seen before.”
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Though the budding market might seem attractive to potential investors, Gormley advises careful research before dedicating funds.
“The reality is you want to make investments in companies with solid fundamentals rather than concepts, specifically publicly traded companies in the space,” Gormley said. “If investors are going to go in privately, you need to have a well-developed network of people inside the industry. There are a lot of crooks out there, and investors can get fleeced. ”
Despite the potential risks, analysts expect the market to continue its upward trajectory for the foreseeable future.
“It will eventually plateau, but we still have a few years of growth,” Bocskor said. “Growth begets growth.”