Is Cannabis the New Gold Rush?
Jul 25, 2018 · 5 min read
The legalization of the cannabis industry is making investors quite happy and here’s why.
Does January 24, 1848, convey any meaning to you? A day that seems for many like a typical day in northern California was everything, but an ordinary one for James Marshall, a moody carpenter from Mississippi.
It was in the beautiful valleys of Sacramento that he discovered the first gold nuggets. At the news of such discovery, 30,000 men and a few women from as near as Hawaii and as far as China and Australia flooded these valleys in the quest for prosperity.
Som e were merely miners, others were business owners selling their goods and services through their gaming houses, saloons, hotels, laundry mats, brothels, mining machinery shops, mining tools retailers, and the list goes on and on. Between the miners and business owners, the latter were the ones that benefited the most from the Gold Rush.
The impacts of the California Gold Rush were momentous: Although the Californian Gold Rush ended in 1855, 750,00 pounds of gold were extracted and worth $2 billion.
The economic and cultural reverberations of this rush had on the American culture cannot be underestimated as its shaped the California’s future into a bright and sunny path. This is how the “Californian Dream” became a reality, for many.
Fast-forward to 2018: Cannabis is slowly, but undoubtedly experiencing a surge in popularity — a green rush, per se.
Akin to Gold, cannabis is not a novelty in America. Albeit, it was not viewed as a precious metal of value back then, its consumption was admired by agricultural enthusiasts and primitive medicinal practitioners until it was criminalized in 1937.
Today, for investors and businesses, pot seems to be a gold mine that promises prosperity like the gold nuggets represented when they were first found in the Sacramento valleys on January 24, 1848.
What is driving the Green Rush:
- Pot is deliberately less frown upon as the economic benefits seem to counter the negatives
- The tobacco industry is slowly shrinking due to a decrease in smokers while cannabis users are reduplicating worldwide. A growing market, if regulated, could generate substantial profits for first-entry investors
- World researchers are publishing the articles pointing out to the medical benefits of marijuana, thus removing the stigma attached to its consumption
- The perceived viable tax revenues are leading governments into a decriminalize rush
- Legalization of Marijuana is a response to the failures of the “war on drugs”, which was pervasively engendered to hurt communities of colour
To put it in numbers: The cannabis industry is expected to reach $75 billion in sales in 2030, which reflects a jump from $6 billion in 2016 in the United States.
The current legal market is only worth $16 billion while the illegal market is worth $40 billion. Turning the illegal portion into legal generating revenue would be a dream come true for investors, entrepreneurs, and merchants.
Akin to that the Gold Rush, what makes the cannabis ecosystem alluring is its diversity. Within the pot industry are listed a few sub-sectors that have a lot to gain from the Green Rush, for instance:
- Agriculture Technology: Manufacturer of specialized machinery for the cultivation of marijuana
- Organic farms: Simply put — pot growers/farmers
- Biotechnology: Focus on the application of marijuana in the treatment of medical illnesses
- Retail: Dispensaries that sell directly to the public
The economics of the marijuana industry in Colorado: Being the first state in the USA to have legalized the production and retailing of recreational marijuana, Colorado has seen significant benefits since 2014. It generated in 2017, $2.4 billion in economic activities, which created 18,000 full-time jobs.
The state, on the other hand, has been able to amass nearly $1.5 billion in tax revenue in 2017, from which $100 million has been reinvested in state-wide public-school boards.
The benefits of the legalization of cannabis are not solely economic but have strong and positive ramifications socially as a recent study suggests that a correlation exists between the decreased rate of violent crime and the legalization of weed in states that border Mexico. According to the study, there has been a reduction in Mexican drug traffic criminal offences as the legalization of marijuana cripples the active operations of drug cartels.
Furthermore, The Journal Police Quarterly suggests that the legalization of weed has made policing more effective. Indeed, law enforcement in states in which marijuana is legal has seen a surge in crime clearance — that is when authorities have identified and arrested suspects and handed them to the judicial system. Why? Because law enforcements veer their resources to other crimes perceived as more significant, rather than focusing on marijuana-related offences.
The Rush Globally: Canada has made the bold move as a “first world country” to tackle the issue by officially legalizing the consumption the selling of marijuana through legislated and authorized dispensaries.
As of June 2018, there are 90 Canadian publicly traded marijuana companies. As such, a number of American companies like MedMen, are looking to grow in Canada, seeing the regulatory and legislative environment to be in their favor.
MedMen hopes one day to become the Starbucks of marijuana, and with a certain acumen, legal guidance, and the right timing could achieve such goal.
Moreover, Constellation Brands, which owns Corona beer, took an enormous financial stride to widen its market. It recently bought a 10 percent stake in Canopy Growth Corporation for nearly $200M. Canopy Growth Corporation, a Canadian medical marijuana company, is now positioned as a top global cannabis company at a value estimated to be at $6.5 billion as of May 2018.
Countries Spain, Italy and Colombia are making their way in also legalizing marijuana and partaking in this growing industry.
South America expects the growth of the medical cannabis market to grow from $125 million in 2018 to 776 million in 2027.
The bottom line and why does it matter: The pot industry is a multibillion-dollar industry, which is quietly but surely growing day by day. As the legal market is opening to the legalization and distribution of marijuana, the rivalry is becoming fiercer. Those who enter the market first are the ones who will benefit the most, also called the first-mover advantage — that is the advantages that are gained by the initial investors who acquire a significant part of the growing marijuana legal market.
Canada as of now is positioned to be a leader in the pot industry. While first world countries are seemingly close to legalizing the commercialization of recreational marijuana, the US remains fragmented and could, therefore, forgo all the benefits that come with being a first-mover.
There is also money to be made in such an industry, although there are risks and caveats to be mindful. Nonetheless, as the Californian Gold Rush, the real money to be made is not necessarily in the cultivation and the selling of pot, but in the businesses that support and service marijuana growers.Does January 24, 1848, convey any meaning to you? A day that seems for many like a typical day in northern California was everything, but an ordinary one for James Marshall, a moody carpenter from… ]]>