Legal Marijuana Market Estimates – Pre Crackdown?

In Politics
Estimated Size of US Legal Marijuana Market 2016-2025

The latest news relating to the legalization of marijuana is two-fold.  First, California has been added to the list of states that have voted for and approved the sale of marijuana for recreational use.  Second, the Attorney General of the United States, Jeff Sessions is in the process of reversing the guidance that the Obama administration gave to states attorney generals regarding the enforcement of federal marijuana laws.  The direction given by the Obama administration has allowed the expansion of legal marijuana, mainly for medical use but also for recreational use.

Since this site is really about numbers associated with the news, let’s get the news part of this discussion over with.  There are currently 19 states plus Washington DC that have legalized the use of marijuana for medical purposes and an additional 8 states that have already or are in the process of legalizing the distribution and sale of marijuana for recreational purposes.  These 8 states are the entire west coast of the US – Washington, Oregon, California along with Nevada, Colorado, Alaska, Maine and Massachusetts.  This represents more than 1/2 of the states including our most populated states, so this represents, according to 2013 census data, 61.2% of the population of the country.

According to the Associated Press, Jeff Sessions announced that it has lifted a policy that kept federal authorities from cracking down on the marijuana related trade in states that have legalized marijuana.  Jeff Sessions will allow the federal prosecutors decide what to do when federal rules and laws do not coincide with state and local laws.  This will put the entire trade into a very questionable area.

In the beginning of each of the last 5 years, marijuana related stocks have performed incredibly well in the first week of the year with each new state that voted to legalize marijuana for either purpose.  This year was no exception according to MarketWatch.  This report was issued on January 3rd of this year the day after the first stock trading day of the year.  One day later, the same day that Mr. Sessions made his announcement, MarketWatch reported that the rally not only was halted but was completely reversed, with several stocks sliding over 20%.

The chart below, provided by Statista, illustrates the potential for the industry should the legalization trend continue.

Estimated Size of US Legal Marijuana Market 2016-2025
Estimated Size of US Legal Marijuana Market 2016-2025

It’s estimated that total sales for both medical as well as recreational use may have totaled $7.97 Billion in 2017.  As this chart also illustrates, the increased demand due to new states being added to the legalization roles could increase the total sales to $24.1 Billion by 2025, with just under $11 Billion coming from recreational use.

To put this into perspective, according to Park Street, a company that provides operational, advisory and financial support to the distilled beverage industry, the total sales volume of alcoholic beverages totaled $211.6 Billion in 2014.  Of this total, 49% of this total was for beer, 15% went to wine and the remaining 37% went to ‘distilled spirits’.  So for perspective the current market size for marijuana is about 2.5-3.0% of the size of the market for alcoholic beverages.  Going back to my days as an accountant, this would be considered to be an immaterial amount (the test as I learned it back in the day had a 5% threshold).  So we are far away from the stoned-zombie nation that seems to be feared by the conservatives in Washington and around the country.

It still remains to be seen how these federal prosecutors act on the new directives and how the states will or will not support federal efforts should they begin to crackdown on the industry.  Many states have had a very positive economic impact from the legalization of marijuana and marijuana related products.  For example, Colorado had taken in over $226 Million in tax revenue for the first 11 months of 2017 related to marijuana.  The state now imposes a 15% tax on marijuana vendors plus a 2.9% additional sales tax.  There are real economic incentives to states continuing to push these initiatives forward, so at some point there will need to be a reconciliation of state and federal laws when dealing with this issue.

For the purpose of comparison, according to the CDC, in 2015 there were 10,265 traffic deaths directly caused by driving related crashes and nearly 1.1 million people were arrested for driving under the influence.  [note, this report did not differentiate DUI between alcohol and narcotics.]

As a last point, I wanted to point out a few pieces of information that are beginning to be reported with the growing focus on the abuse of opiates and the deaths that are caused.  Drugabuse.com has reported that there has been “about a 25 percent lower rate of prescription painkiller overdose deaths on average after implementation of a medical marijuana law”.

As a Libertarian, I actually believe that a person has the right to put into their body what it is that they want to, so I’m not in favor of a federal crackdown and a return to complete prohibition.  We saw how well that worked with alcohol in the 20s and 30s and the related violence.  What I am definitely in favor of is searching for some middle ground that will allow for proper research to be done to see just how beneficial the marijuana industry has the potential to be, or just how harmful its use has the potential to be.  The reality is that marijuana is not anything like what is depicted in “Reefer Madness” as Jeff Sessions would like everyone to think that it is — nor is it completely harmless as proponents state that it is.

Research, time and data are needed.

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