Capitalizing on the Cannabis ‘Gold Rush’
Today, states that have moved toward legalization of cannabis have seen an increase in small business ownership and a level of success unusual for such a new market.
Chasing the green market
Many look to the recreational laws on the books as proof of cannabis’ economic viability, but data from the “Legal Marijuana Market Size, Share & Trends Analysis Report” found medical marijuana and cannabis products accounted for 80 percent of cannabis revenue generated in 2016. Over the course of the next six years the medical marijuana industry is projected to far outpace the recreational market.
However, the industry is still a massive one. In Colorado alone sales grew from $683 million in 2014 after legalization to over $1.5 billion in 2018, according to the Colorado Department of Revenue. As the industry sets its foundation in The Centennial State, users of cannabis-based products continue to leave the illicit market for the legal one. These markets are booming!
Callout: In 2016, North America accounted for the largest share in the global cannabis market and was valued at USD $7.2 billion.
Marijuana Business Daily estimates that the revenue generated, per square foot, for cannabis retailers, recreational and medical combined, exceeds the profits generated by Whole Foods and department stores and just under Costco Wholesale. Estimating about $974 per square foot of space, cannabis retailers are easily some of the most profitable types of brick-and-mortar stores in the country.
Drawbacks of cannabis retail
There are mandates on the industry that some retailers are finding to be a bit too costly. In California, dispensaries and manufacturers see a bleaker image. California’s market is a particularly regulated one and some are blaming their struggling financial situation on compliance with new regulations, taxes and the ever-present illicit market being legal in California after the Adult Use of Marijuana Act was passed by a voter initiative in 2016. Despite the legalization of cannabis-based products, law enforcement officials have found a 166 percent increase in smuggled marijuana at the LAX airport.
According to experts, this increase in trafficking is due to the oversaturated market where everyone is trying to start their own dispensary and sell their own products. Additionally, the learning curve for both new business retail owners and consumers in a newly legalized market has its fair share of issues including dispensary and cultivation licenses, which can cost retailers tens of thousands of dollars to obtain.
Due to its history of prohibition, the cannabis industry in America is still in its infancy, making it ripe for innovative retailers and early adopters to take advantage of an emerging retail sector. In addition, relentless regulation of markets from the federal to the state level causes an unprecedented degree of uncertainty in this otherwise booming industry. Regulations lead to platform fluctuations in potential retail partners, most notably ecommerce distributors, point-of-sale systems and even fleet management operations.
To get the best out of this industry, experts recommend a “dope accountant” to clarify some of the conundrums imbedded in this emerging industry flooded with high taxes, costs and legal grey areas constantly changing. Naturally, these “dope accountants” are costly as they monitor every aspect of the industry, connect retailers with investors and make sure distributors are on the cutting edge of the market and assessing potential legal downsides.
Conventional wisdom argues that the cannabis industry has room for everyone to take advantage of the profits intrinsically linked to the once politically and socially demonized product. However, from market oversaturation to undue regulations, it is a much more of a gamble than many would realize. The illicit market still takes up the lion’s share of potential revenue.
Don’t get totally blinded by the green buds. The industry is full of red tape bureaucracy and, while highly profitable, the cost of access can seem insurmountable for smaller retailers not based in the few states where non-medical dispensaries are legal. Success may not be guaranteed but, relax … man — great risks often yield great rewards.