Young, Wild and Free: The nascent US medical marijuana industry rising to a new high

April 14, 2018
Editor(s): Mazen Elsabrouty
Writer(s): William Chen, Sophia Dong, Akira Ridwan

What is medical marijuana and where can I get some?

Medical marijuana or medical cannabis is the recommended use of marijuana by doctors to improve health outcomes for patients. Recently, growing bodies of research have suggested that medical cannabis can provide health benefits such as pain relief and nausea control to a large variety of patients, including those with terminal cancer, AIDS/HIV, epilepsy and chronic pain. This has lead to the legalisation of medical cannabis in a number of countries including Canada, Germany, Israel, Netherlands, US (30 out of 52 states) and Australia (Deloitte, 2017). The slow trickle of legalisation concerning medical marijuana has slowly spread across the US over the past six years with California being the most recent state in 2018 to allow the use of medical and recreational marijuana. Currently, there are now 30 US states permitting the medical use of cannabis and 9 US states permitting the recreational use of cannabis. Despite the ethical controversies surrounding marijuana, these numbers are only growing and at a very high pace too!

The macro effects of the marijuana market in the US

Whilst US Federal law currently prevents doctors from prescribing marijuana (only allowing them to recommend it) empirical evidence has shown that the marijuana market has provided a major boost to US government income. In 2017 alone, US State governments received a total of $1.7B USD in taxation income from marijuana, according to BDS Analytics. The economic benefits of marijuana legalisation, at a state government level, has resulted in numerous positive spillover effects.

Firstly, from a financial standpoint, states like Nevada have not only benefitted from increased taxation revenue but also from reduced spending on law enforcement, according to Nevada State Senator – Tick Segerblom. Secondly, from a political standpoint, states like Colorado who received $135M USD in taxes from $1B USD in total cannabis sales, can now spend more time and money on designing and improving public policy. With an improved budget, politicians can now spend more time designing, testing and executing policy in education, infrastructure and health amongst other things. Thirdly, from an economic standpoint, this emerging industry has opened a new market for employment and investment opportunities. In 2017, there were 9,397 active licenses of US marijuana businesses and 121,000 workers employed in the market – a 445% year on year increase in employment (ZipRecruiter, 2018). As a result, it is now estimated that the number of cannabis workers employed has now surpassed the number of dental hygienists in the US (Business Insider, 2018). With more jobs and growth expected in the US medical and recreational marijuana market in the future, this comes as a welcome boost to the US given their current predicament surrounding the trade war with China (amongst many other things).

The emerging presence of the US cannabis start-up scene

To put this in perspective, the US cannabis industry made $8B USD in total sales in 2017, making it bigger than the energy snack bar, milk and cream industries (CNN, 2018). Forecasts from Thomson Reuters predict annual total sales from cannabis in the US to nearly triple to $22.6B USD by 2021, highlighting the huge growth opportunities expected for the burgeoning ‘pot’ market. Whilst the majority of the value in this market stems from medical marijuana usage, experts predict more lenient recreational marijuana legislation is on its way in the future. As a result, they believe that sales from recreational cannabis usage may catch up or even outpace sales from medical cannabis usage (The Cannabis Industry Annual Report, 2018).

Despite strong demand for a wide range of recreational cannabis products from infused artisanal chocolates to specialised farming equipment, large financial institutions and venture capital giants have remained bearish due to the stigma and uncertainty regarding the industry’s legality at a Federal level. As a result, angel investors and private equity have taken this opportunity to fill the investment void, pouring nearly $1B USD into 272 companies since 2012 (Quartz, 2017). Because of the legal risks surrounding cultivation and the distribution of marijuana, investors have flocked towards technology and support services within the industry. Some of this technology includes dating apps such as HighThere and My420Mate which connects cannabis users, as well as educational apps such as WeGrow which provides a platform for people to learn how to grow cannabis. Amongst the wide range of support services include ETFs (exchange traded funds) that track the value of marijuana firms in the stock market. Ultimately, the marijuana industry is growing very strongly even in the absence of corporate backing and consequently, there is huge potential for reward given the diversity and new infrastructure supporting the industry.

The grass is getting greener, but will it become green?

With Canada expected to become the first G7 nation to legalise recreational marijuana by July 2018, the US Federal government faces increasing pressure to at least make medical marijuana legal. As it currently stands, all forms of marijuana usage is illegal on a US Federal level (except in some circumstances – which we won’t bore you with the details here), so unless more states take the initiative to legalise recreational and medical cannabis, the US Federal government will not back down according to Keith Stroup, the Co-Founder of the National Organization for the Reform of Marijuana Laws. Although it is not expected that legalisation of marijuana will occur at a Federal level in the short term, this budding industry will not grow to its full potential without the assistance of Federal law. Thus, we believe it will only be a matter of time before the US Federal government legalises medical marijuana – the greatest high a proponent of cannabis usage will get!

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Mazen Elsabrouty
William Chen

Bachelor of Commerce student from the University of Melbourne studying Actuarial Sciences. Passionate about data analysis, risk consulting and financial restructuring.

Sophia Dong
Akira Ridwan