iCrowdNewswire Jan 17, 2021 12:53 PM ET
Marijuana is one of the most discussed products of recent history and for good reason. It was illegal for such a long time (since 1937) people never thought a day would come when they could shop for marijuana products like groceries. Then, all of a sudden, a spark was ignited all over the US and the move to legalize the controversial plant for various uses seemed to spread like wildfire.
So many marijuana markets now exist, from medicinal to recreational. This doesn’t even take into account the supplementary markets such as cannabis accessories which would include some of the iconic products such as bongs or pipes all the way through to more specialized products like rosin presses which are used to make dabs. The overall economic growth of legalization can be hard to measure because it was even found that legalized marijuana has led to increased sales in fast food restaurants.
With so many states legalizing recreational consumption many initial projections made it seem like the playing field would be favorable for everyone for many years to come, but this doesn’t seem to be the case everywhere. While some states – like California and Colorado – just keep thriving, others are still having a lot of trouble rising to the occasion. In this article we are going to cover a few reasons why.
The Black Market Still Exists
Although marijuana is legalized for recreational use and is relatively easy to acquire in most states, most people still prefer sticking to the same old black market dealers. There is no denying that the presence of the black market is taking so much from legal marijuana by clinging onto more than half of the buyers.
Why? For one, there is still a stigma in marijuana use, hence most people just feel comfortable calling their street dealer who doesn’t care. Moreover, tax regulations have seen the price of legal cannabis double the street rates. Availability is also an issue, with the black market weed being more readily available even to under the age of 21.
Colorado and Nevada had an Advantage
While other states were still struggling with legislation and dispensary approval, some states were already a step ahead because they started legalizing early. It’s no wonder Colorado recently hit the $1-billion-dollar mark in revenue.
Nevada was advantaged as well – the state already had an infrastructure in place for growing and selling medicinal marijuana and that is in-part why things were so easy to handle when recreational marijuana was finally legalized.
Being among the first ‘marijuana states’ also meant that some of the legal weed in those areas were trickling down to other states in the form of illegal marijuana. This further just slowed matters down when the affected states started legalizing.
The Laws are Not Easy to Navigate
In as much as marijuana has been legalized by most states, it remains illegal at the federal level under the Controlled Substances Act. As a result, startups have to go through very complex and costly legal procedures before they can actually settle in and begin making profits.
Again, many banks are hesitant to work with marijuana businesses for fear of attracting money laundering charges related to “drug trafficking” or losing their FDIC status. Therefore, most startups have been forced to seek funding from Canadian investors since marijuana is legal in Canada – this is proving to be very costly for them.
The Stock Market is Unstable
Finding investors in the marijuana market has become a huddle, mostly because the market isn’t stable. The pioneers had an easier time because they were able to charge high for their product. However, presently, with over 5000 shops and at least 9000 marijuana growers across the country, pot prices have declined by half and the stocks alongside.
Tilray, for instance, plunged 90% in the past year. Investors don’t feel confident going into the marijuana business anymore. 5000 shops are more than the number of Walmarts (which don’t stock a single product, by the way) and 9000 growers are more than the number of breweries in the country. There is simply not that much money to be made.
The Next Big Thing – again
The marijuana business underperforming in some states was bound to happen and this comes as no surprise. Just like every other “big thing” that has been there in the past – remember the hype that was there during the inception of the internet? Investors rushed to cash in. Today, there are only a few household names such as Xfinity, AT&T, CenturyLink and a few others. The narrative is the same for the 3D printing and mobile phone industry.
The marijuana business was more lucrative when it was still illegal, and now that it is being legalized there is a rush by almost all investors to gain stakes in the venture and the market is becoming flooded by the day. This has led to a reduction in marijuana prices and profitability in some states. Ultimately, only renowned companies like Tilray and Canopy Growth Corporation will survive in the long term.
The post Why the Marijuana Market Isn’t Doing Well in Some States appeared first on Financial Market Brief.
