Marijuana

Report: Marijuana Market One Of The Country's Fastest Growing, Hindered By Federal Raids

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As observers of the industry have probably noticed, the legal marijuana market is exploding. As observers have likely also noticed, its spectacular growth has been seriously hindered by the federal government's enforcement of prohibitionist policies in states where medical marijuana is legal. A recent study by ArcView Research, a "leading national network of investors looking to capitalize on the legalization of marijuana," details predictions for just how much the market will continue to expand, which states will legalize it next, and the specific ways in which the federal government is stomping out growth.

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The group's researchers surveyed hundreds of medical marijuana dispensaries, ancillary business operators, and independent cultivators, in addition to analyzing publicly available data. According to the Executive Summary of the report, which was made available for download earlier this week, the marijuana market looks promising to investors, but still faces some significant challenges from the Feds.

Legal Marijuana Market is Huge and Growing Fast

Currently, the U.S. national legal marijuana market value is assessed at $1.44 billion. It's projected to grow by 64% to reach $2.34 billion in 2014. By comparison, the smartphone market grew 46.5% from 2012 to 2013.

According to the Huffington Post:

"Cannabis is one of the fastest-growing industries," said Steve Berg… editor of the report. "Domestically, we weren't able to find any market that is growing as quickly."

While it's important to note that smartphones surged in popularity long before medical marijuana became a viable industry, and global sales numbers for 2012-2013 don't offer a direct comparison to 2013-2014 domestic estimates, Berg said his goal was to illustrate just how rapidly the cannabis market is expanding by offering familiar data points. 

The report also claims that the five-year national market has the potential to balloon to $10.2 billion—a more than 700% increase above the current value. This growth will come from both increased demand in existing state markets and new venues in the 14 states that are expected to have legalized recreational marijuana sales by then. Specifically, the report predicts that within five years Alaska, Oregon, Rhode Island, New Hampshire, Vermont, Maryland, Hawaii, Maine, Missouri, Massachusetts, Nevada, Arizona, California and Delaware will have legalized marijuana for adults.

Federal Policies Are Curbing Growth

According to the report, "around $500 million was shifted back to the illicit market from legal channels following federal enforcement actions against certain operators in legal marijuana states in 2011 and 2012." In California alone, the Feds have helped to shut down at least 150 dispensaries since 2010.

The report is optimistic though—based on the DOJ's recent memo and expert testimony—that the Obama administration will scale down or even cease federal raids on legal marijuana businesses in states with tight regulatory systems.

Additionally, the report lists business risks stemming from lack of access to banking services (due to a federal law that prohibits banks from doing business with controlled substances distributors) and tax accounting restrictions.