The marijuana "Green Rush" is definitely on fire, and it's not just blowing smoke.
Marijuana retailers will see store revenue grow at an average annual rate of 30.3 percent to $13.4 billion in the years leading up to 2020, with edibles comprising the vast majority of projected sales at 54 percent of the current market share, according to a new report issued by IBISWorld.
The growth rate for 2015 alone is expected to be 28.1 percent, following growth rates of approximately 34.2 percent to $3.6 billion in the five years leading up to 2015—despite intensive government regulations that have been slow to repeal.
The report divided product share for marijuana sales into three categories: smokable sativa, smokable indica and edible cannabis products. According to the report, 20.2 percent of sales come from smokable sativa, 25.8 percent come from smokable indica, and the remaining 54 percent come from edibles.
Sativa and indica make up the two main categories of marijuana strains, while the report leaves remaining sales in the "edibles" category, which could include products that consist of both indica and sativa strains.
There are, as of yet, no major players in the medical and retail marijuana industries, the report noted, leaving the market share in developing areas mostly open to newcomers or startups who haven't quite gotten a footing yet. It also gives dispensaries and suppliers who have already made a name for themselves a greater incentive to expand and pioneer the top tier that has yet to really be.
Burgeoning businesses looking to make it big have a few things to consider. The leading external drivers of the marijuana industry, according to the report, have been identified as regulation, per capita disposable income, external competition and the number of adults aged 50 and older—a demographic that has proven key to industry growth thus far and is expected to expand as the population gets older.
Chronic illnesses have become more prevalent as the population continues to age, driving demand for medical marijuana, the report said, adding that the development of edible cannabis products has helped attract consumers who are unfamiliar with marijuana products or are averse to smoking.
But just because earnings are promising for businesses thinking about targeting the medical angle doesn't mean recreational marijuana won't take a larger share of the market as regulations ease. According to the report, the opening of the first recreational marijuana stores in Colorado and Washington contributed to industry revenue growth of 70.5 percent in 2014.
The market for legal marijuana still depends heavily on state regulation because the plant remains illegal on the federal level. Medical marijuana sales, enabled by various regulations across 23 states and the District of Columbia, make up the bulk of industry revenue.
According to the U.S. Government Accountability Office, under state medical marijuana laws, symptoms and conditions that may be treated by cannabis included Alzheimer's disease, anorexia, HIV/AIDS, glaucoma, cancer, arthritis, epilepsy, nausea, pain, cachexia, Crohn's disease, migraines, multiple sclerosis and spasticity.
Roughly 64.6 percent of medical marijuana patients use the drug for "severe pain," according to the report.
California is home to the largest market for medical marijuana, despite the fact that legalization of the Schedule 1 drug in Colorado and Washington has made these states—which account for 15.6 percent and 9 percent of industry establishments respectively—the nexus of the industry. California is still home to 68.3 percent of marijuana business establishments, but stricter regulations mean less industry development.
Legal recreational marijuana sales started in Colorado and Washington in 2014, beginning with Colorado's inauguration of recreational marijuana distribution on Jan. 1 of that year.
In its first year the marijuana industry generated $400 million in revenue, despite licensing issues for many dispensaries and growers.
With the exception of Colorado, medical marijuana stores in all states operate as nonprofit collectives, according to the report.
Jonathan P. Caulkins, author of "Marijuana Legalization, What Everyone Needs to Know," said nonprofit status doesn't actually impact profits heavily in the marijuana industry, as shown by growth estimates already stated.
"The usual knock against nonprofits is that they do not operate as efficiently as do for-profit businesses. But that hardly matters, because after legalization marijuana production costs will be very low," he wrote last year in an article published by Washington Monthly. "... Outdoor farming would be even cheaper; all of the marijuana currently consumed in the U.S. each year could be produced on about 10,000 to 15,000 acres—or about a dozen Midwest farms."
On Nov. 4, 2014, D.C. voters overwhelmingly approved Initiative 71, which legalized the limited possession and cultivation of marijuana by adults who are 21 and older. The initiative survived a 30-day Congressional review period and went into law on Feb. 26 of this year. With the federal District joining the marijuana bandwagon, future industry progress is beginning to look even greener.
The Green Rush is just beginning.
-See this IBISWorld report
-See this Washington Monthly article
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