March 24, 2011

Medical Marijuana Industry Projected To Generate $1.7 Billion

According to a new report out this week, the U.S. medical marijuana market will generate $1.7 billion in economic activity in a year. 

However, researchers say that the market could grow as the list of states that legalize pot for treating illnesses grows.

See Change Strategy for the American Cannabis Research Institute and Deal Flow Media, a financial research firm, conducted a study which found that only 800,000 out of the 25 million Americans who are potentially eligible to use medical marijuana based on their diagnoses currently do so.

The authors of the study said that the opportunities are not confined to cultivation and distribution.

The study consisted of 300 medical marijuana industry insiders who revealed that the market faces a number of hurdles.  Those hurdles include access to legal capital, unfavorable tax status, a lack of experienced executives, downward pricing pressure and complex of state and federal rules.

There is also the potential for conflict with the criminal gangs that control the larger $18 billion a year illegal U.S. marijuana market.

The study said that the U.S. medical pot market could be nearly half the size of the illegal market in just five years.

"That's assuming there are no obstacles," Ted Rose, the editor of the study, wrote in a report. "I'm not weighing in on whether that's likely or not. But that $1.7 billion is the real money that's being made this year."

"Hundreds of businesses exist around the country that cultivate and sell marijuana to customers," he added in a statement. "Many of these businesses emerged in the wake of the Obama administration's decision to deprioritize federal prosecutions of individuals and business complying with state medical marijuana laws. The State of the Medical Marijuana Markets 2011 shows which states represent the most active markets, who is making money, and how are they doing it."

Over a dozen U.S. states and the District of Columbia have legalized the use of marijuana to help patients with chronic illnesses, including cancer, AIDS and multiple sclerosis.

According to the study, 34 percent of the medical marijuana business said regulatory compliance was the top challenge they faced.  About 24 percent said financing was the industry's most pressing need.

The authors of the study said that the market has its risks, including "the ever-present risk of being shut down or experiencing a property seizure without notice."

Rose said that See Change decided to perform the study because he noticed that most of the existing research in the field was either "personal, anecdotal, or polemic."  He found that there was little information on the industry's potential market value.

"We undertook this effort because we noticed a dearth of reliable market information about this politically charged business," Rose said in a statement.

California and Colorado account for 92 percent of the wholesale and retail sales of marijuana in the U.S.

Nearly 63 percent of the businesses surveyed said they have been in business for less than a year.

Jeffrey Miron, director of undergraduate studies at Harvard's Economics Department, has studied and written extensively about drug prohibition.  He told MSNBC that agrees with the major findings of the 92-page market analysis, which is being sold for $1,150 to interested customers.

"Finding real dollar numbers in this industry is difficult, but this data seems plausible. It certainly isn't loony to suggest that there is currently $1.7 billion in the medical marijuana marketplace."


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