The Real Reason Why Marijuana Will Be Legal
There’s a big furor over marijuana. Legal marijuana may be the fastest-growing industry in the U.S. It is making millionaires and could make billionaires.
Why are we talking about marijuana in an energy and resource e-letter? The answer is simple: It’s a resource. Marijuana is a cash crop, and a huge one at that. The U.S. market for legal cannabis grew 74% in 2014 to $2.7 billion. That’s up from $1.5 billion in 2013.
It’s so big, it’s even entered the presidential race, with many contenders saying the decision to legalize pot is up to the individual states. And sure enough, medical marijuana is now legal in 23 states. Recreational cannabis is legal in four states and the District of Columbia.
But let me tell you, we could see a wave of legalization across America. And it comes down to one reason: money. As states balance tight budgets, marijuana might become a necessity.
We’ll use some facts from Colorado, where recreational marijuana is legal.
- Legal sales in Colorado of medical and recreational cannabis hit $700 million in 2014. That’s the first full year for which statistics are available, according to a Wall Street Journal analysis of Colorado tax data.
- The number of active licenses to grow the plant for retail consumption shot up to 397 from 204, according to Colorado’s Marijuana Enforcement Division.
- Colorado alone brought in about $76 million from taxes and fees on the marijuana industry in 2014. It brought in so much money from taxing pot, the state is actually lowering the tax from 10% to 8% starting in 2017.
And now businesses are capitalizing on this trend.
- American Cannabis Partners is opening Colorado’s first “weedery.” In other words, a winery for marijuana users. But unlike a winery, you won’t be able to consume the product on the premises. The new facility will be called the Colorado Cannabis Ranch & Amphitheater. It will be a $35 million facility, including open-air greenhouses, a rooftop bar, a restaurant and live musical performances.
- My 420 Tours, founded in 2013, brings 300 to 600 tourists per month to Colorado to stay in weed-friendly hotels. Activities include everything from tours of dispensaries to marijuana cooking classes.
- Then there are the dispensaries themselves. Any adult Colorado resident can apply for a retail marijuana business license. Individual cities in Colorado can ban marijuana dispensaries, but plenty welcome the tax revenues.
Marijuana is such a booming business in Colorado that owners of other Denver businesses find themselves fighting for warehouse space with companies growing weed. Rental costs in the Colorado warehouse market rose 10% last year.
So that’s Colorado. But the marijuana rush is spreading far beyond the state’s borders.
In California, medical marijuana generates $100 million in sales tax revenue and keeps more than 100,000 people employed across the state.
Washington state recently passed its one-year anniversary of legalizing recreational marijuana. In that time, the state has harvested $70 million in tax revenues from marijuana sales.
Oregon, which legalized it on July 1, has a different tax structure than Colorado or Washington. It expects “only” $18.4 million in tax revenues over the next two years.
But I haven’t told you the biggest incentive to legalize weed: Colorado has kept back $25 million of its marijuana tax revenue. It plans to return this to ALL taxpayers, whether they bought marijuana or not.
If other states follow Colorado’s lead, I think legalizing and taxing marijuana could become very popular indeed.
Even Canada is getting into the act. The largest legal medical marijuana facility in the world is less than an hour from Buffalo, in the town of Niagara-on-the-Lake, Ontario.
It’s a 350,000-square-foot greenhouse. That’s more than eight acres of pot growing under one roof. Park Lane Farms is the company growing the marijuana. Its sister company Tweed Marijuana Inc. (OTC: TWMJF) sells it.
Health Canada, which regulates the country’s marijuana business, estimates that the Canadian medical marijuana industry will reach C$1.3 billion (US$987 million) in a decade.
And Canada’s Supreme Court recently struck down a law that restricted medical marijuana users from purchasing or consuming the substance in any form other than dried leaves. This now allows for cookies, teas, oils and more. That sounds like more business opportunities to me.
To be sure, marijuana faces hurdles. One is that federal regulators have yet to approve an easy way for banks to handle accounts for marijuana businesses.
The U.S. Treasury Department issued guidelines last year for how banks could accept marijuana money, but many large banks considered the guidelines onerous. So they still won’t take deposits related to pot.
And Colorado’s attempts to set up a credit union for pot farmers has so far failed. The National Credit Union Administration cited uncertainty about the marijuana business when it declined the application for deposit insurance.
Marijuana growers also can’t get crop insurance. With wildfires ravaging the West, many growers, big and small, are sweating big-time.
Still, despite these risks, the reward can be a bumper crop of profits. A pound of “pharmaceutical grade” marijuana costs about $1,000 to produce and sells for $7,500 at retail prices.
How You Can Make Money
Most marijuana stocks have something in common: They’re terrible, with valuations far out of whack with their underlying fundamentals. However, there are a couple of possibilities you might want to consider.
MassRoots Inc. (OTC: MSRT). This company has a market cap of $59 million, so it’s very small. But it’s generating a lot of buzz.
MassRoots connects marijuana users to each other and area dispensaries via mobile app. Since the company does not handle or sell marijuana, it is available nationwide.
The company website says the app has 500,000 users, more than 1,000 marijuana businesses listed, and 140 million user interactions.
GW Pharmaceuticals (Nasdaq: GWPH) has a market cap of $2.4 billion. It’s a real company with revenues and earnings. It develops drugs derived from cannabis compounds, THC (a psychoactive compound in marijuana) and the non-psychoactive cannabidiol. It has been doing this for over a decade.
GW Pharmaceuticals is currently testing a new cannabidiol-based drug, Epidiolex, which is targeted at treating severe epilepsy.
Long story short, legal marijuana is coming to your state sooner rather than later. And those who want to target profits can start right now.
All the best,