As we close the books on 2015 and look to the future, we thought it would be beneficial to outline short, medium and long term trends to watch that we believe will affect marijuana industry growth.
The velocity and breadth of growth in the marijuana industry will in most part be determined by the pace of state and, eventually, national legalization. Eventual rescheduling or de-listing of marijuana as a federally prohibited drug will hopefully lead to consistent and uniform national regulation and taxing authorizations that will ultimately change the structural and economic landscape of the industry.
Statistical analysis of current sales trends is a useful tool to understand a newly liberated consumer base and allows us to make certain reasonable projections for subsequent growth rates. But such analysis, in a holistic sense, is somewhat contingent upon the direction of future political and legal reforms. Though it is hardly possible to predict a specific timetable for the full legalization of marijuana and its resultant market maturity, investors and operators should follow certain present, medium, and long term trends as they make investment decisions.
Present Term Trends
Concurrent with the trend of additional states passing legislations providing for medical and / or recreational legalization, conversations and initiatives at the Federal level are seeking to minimize the current restrictions of absolute prohibition statutes and guidelines, or remove them altogether. We see this progression of national sentiment continuing until actual rescheduling or de-listing removes the major barriers that have heretofore retarded the normal economic development of the industry.
Furthermore, once state specific legislation is passed to legalize cannabis in some capacity, the number of cultivation and sales licenses awarded will affect the growth rates within each state. A restrictive regime that issues ten licenses will see drastically different growth than a more free market approach adopted by states such as Colorado and California.
Along with this continued march towards national acceptance, questions concerning uniform standards of cultivation and the preparations of infused products are being addressed, so far, at the state and municipality level. These discussions will continue in good faith until broader mandates for universal adherence are established.
We believe that the medical sector is presently suffering under an identity crisis. Whereas the call for medical exceptions initially fueled the reform movement, the introduction of recreational use has somewhat stripped away the allure of patient registration and physician acquiescence as a means of access to legal cannabis.
The research and development of specialized strains targeted at the relief of specific medical conditions is only in its early stages. Until Cannabis is rescheduled, it will continue to be difficult for researchers in the United States to make significant progress on research that explores cannabis and its role in preventing or mitigating various diseases and conditions and present their findings to both the medical community and general public.
Medium Term Trends
As each state ends Marijuana prohibition at the state level the federal government will finally capitulate. A change of policy by the DEA, whether voluntary or induced by a series of Congressional enactments that make the current class 1 scheduling moot, will be simultaneously predicated upon regulations administered by federal agencies such as the FDA, EPA, and Department of Agriculture.
We suppose the FDA and Department of Agriculture as the most likely designates to implement policy regarding the safety and assurance protocols for cultivation and product sales. Clear policy and rescheduling will likely spur a wave of interest in the research and development of marijuana based medical treatment.
The medicinal market will be redefined as the pipeline of new, more targeted medications with precise dosing and efficacy expands with some products requiring a prescription and others sold “over the counter.” Subsequently, we expect the medical profession will gain more comfort in “pushing” a marijuana treatment rather than a patient having to “pull” a recommendation from a doctor. These developments are difficult to place time frames on, as legislation will lead to guidance that will lead to increased entrepreneurial and scientific efforts.
The recreational market should likewise continue to flourish as the ability to conduct normalized commerce will enable larger cultivation enterprises to propagate into additional states while established brands of infused products will likewise be able to expand, untethered by state boundaries, to become national brands and enjoy the benefits of interstate commerce.
Long Term Trends
In the long term, we see a mature recreational industry with national, regional, and local players similar to the alcohol industry. No doubt there will occur a consolidation of players in the medical sector with competition between proven players providing an increased number of products that treat the same disease or condition.
We are not able to project how large the medical sector could eventually grow, as research and clinical trials are still a long way out. As this research has time to incubate and theories and claims are vetted we will know more. Whatever the depth of applications that are in fact proven and accepted, the medical market will reach a maturity and fully compliment a vibrant recreational market.
States will most probably decide to regulate and collect tax revenues under a single umbrella mechanism in much the same fashions as they monitor alcohol and tobacco. In this scenario a single regulatory entity, such as the state Liquor Control Board, will oversee marijuana, alcohol and tobacco.
At this point the marijuana industry will have shed its identity as a novelty enterprise and taken its place along side other conventional “consumer staples.”