The gathering momentum toward legalization of marijuana for both medical and recreational uses is firing up the growth rate of the U.S. cannabis industry, according to a new industry report.
Legal marijuana sales in the U.S. will top $2.3 billion in 2014, up 64 percent from this year’s $1.4 billion, according to a new study by a marijuana industry group. At that rate, U.S. cannabis sales will outpace the worldwide growth of smartphone sales, which expanded 46 percent between the second quarters of 2012 and 2013, the report says, citing Gartner research.
Almost 600,000 consumers will purchase cannabis legally from a retail storefront in 2013, according to the report by ArcView Market Research, which is owned by The ArcView Group, the leading national network of investors in the legal marijuana industry.
ArcView Market Research projects the legal marijuana industry has the potential to reach $10.2 billion by 2018 as more states legalize cannabis. Currently, 20 states and the District of Columbia have some form of legalized marijuana. The states of Colorado and Washington allow recreational use of marijuana, subject to certain restrictions, for adults over 21. The report predicts two more states will legalize medical marijuana and an additional 14 states will approve adult use within five years.
California, which only allows medical marijuana, is the largest U.S. market, at $980 million. Arizona is forecast to be the fastest-growing market, expanding to $134 million in 2014 from $22 million this year. Massachusetts, the largest new market opening in 2014, is projected to reach $55 million.
The growth is creating opportunities for investors in companies that support the legal cannabis industry. These include growers and retail dispensaries as well as a variety of ancillary businesses ranging from information technology companies that provide point-of-sale and inventory-tracking software to security companies that offer alarms, door locks and video monitoring systems.
Among the legal marijuana businesses that hold the most potential for growth are manufacturers of equipment that extracts the active ingredient from cannabis, according to Steve Berg, editor of the report and a former managing director at Wells Fargo Bank.
“It’s the same process that’s used for extracting essential oils in the food industry and for perfumes and scents, using the cannabis plant,” said Berg. “The process extracts the content that has the medicinal properties in the cannabis plant and other properties that are being sought by both patients and consumers.”
The ArcView Investor Network used the occasion of election day on Tuesday, which marked the one-year anniversary of marijuana legalization votes in Washington and Colorado, to hold an investor conference in Seattle, where 13 companies pitched their business plans to more than 60 high net-worth accredited investors. According to ArcView, more than 10 of its members have invested about $1.7 million dollars in at least three companies that presented at ArcView’s last investor conference in Denver on September 23. The companies include MassRoots, a social networking app for cannabis consumers; Medicine Man, a leading cannabis retailer in Colorado; and Canna Security America, a security company for legal cannabis companies.
The “State of Legal Marijuana Markets 2nd Edition” is the follow-up to the first study published in 2011. The findings and projections in the latest report are based on 400 surveys and interviews of cannabis retailers, cultivators, processors, and industry leaders, ArcView said.
“It’s really important for people looking at this space to appreciate that the legal marijuana markets are complex,” said Berg. “They are spread across individual state markets that have their own unique regulatory systems, and understanding the regulatory environment is absolutely critical to understanding where the opportunities are and, equally important, where the risks are.”
