The legalization of recreational marijuana in Canada, as well as in select U.S. states, hasn’t stomped out black market cannabis, as initially expected. The cannabis black market represents a major opportunity for growth among legal cannabis suppliers.

Several states have legalized recreational cannabis with the intention of reimagining this vast underground market as an above-board business that bolsters the state’s economy via transparent dealings. To date, however, the federal government has refused to budge regarding cannabis’s status as an illegal Schedule 1 substance. This classification puts cannabis on a par with opioids. As such, those states that have legalized recreational cannabis are extremely motivated to keep these businesses on the up and up and not to pique federal interest.

The reality is that – due to supply and demand – cannabis costs about half as much in cannabis-legal states as it does in states in which it’s illegal. Black market growers in legal states destabilize the market. Those legit companies which remain above board, pay their taxes and jump through every legal hoop, cannot compete with black market interlopers who eschew such niceties.

Industry Insights

The U.S. cannabis market size was valued at USD 11.3 billion in 2018 and is expected to register a lucrative CAGR of 14.5% over the forecast period. Cannabis, or marijuana, is very commonly used in the U.S. by cosmetic, pharmaceutical, and food and beverage industries. The market has been witnessing exponential growth despite its quasi-legal status and companies are striving to keep up with its growing demand and frequent legal changes pertaining to each state in the country.

The marijuana market has grown significantly over the past few years as more states have legalized it. As of 2019, 33 U.S. states and the District of Columbia have legalized marijuana for medical, recreational, or both purposes. This has encouraged an influx of business startups, which has further helped in collectively driving the market.

As more states legalize the use of marijuana for recreational or medical use, the legal demand is expected to increase. Combating the illegal market and potentially generating revenue from new job opportunities and businesses are key factors behind this move. Industrial players and public officials are focusing on balancing safety and health as they expect to undermine the illegal use of marijuana and ensure a safe and controlled supply. However, the illicit cannabis market in the country is very high, as the price of products sold via illicit channels is very less compared to that of the drug sold legally. Moreover, policymakers are keen on addressing conflicts between federal regulations and state that impede the growth of the industry, which if rules out to be in favor federal legalization, will exponentially drive the overall market in the country.

The unavailability of permanent banking solutions has compelled businesses in the country to transact with cash, which is creating financial security problems such as money laundering. U.S. states are working around these challenges by authorizing cannabis credit co-operatives to aid business development, which may help the market to a certain extent. Section 280E tax code at the federal level prohibits the deduction of ordinary business expenditure related with the “trafficking” of Schedule I drugs. This tax burden incentivizes engagement of businesses in the black market and is thus dampening growth.

Marijuana Type Insights

Based of marijuana type, the medical segment accounted for the largest revenue share in 2018 with a revenue of USD 7.2 billion owing to its growing acceptance for treatment of chronic diseases such as pain, cancer, and mental disorders. One major reason for dominance of the medical segment in U.S. is several states legalizing medical use of cannabis compared to the few that have only legalized it for recreational use. Medical cannabis distribution is regulated by government programs and therefore it is necessary for suppliers to maintain mandated quality control on the products.

Over the years, the medical application of marijuana has witnessed tremendous expansion as the amount of scientific literature supporting its benefits in the treatment of various diseases is growing. As the number of U.S. states legalizing medical cannabis is increasing, the market is expected to witness lucrative growth over the forecast period. Furthermore, the medical conditions for which marijuana is being used are also increasing, which is expected to open up new avenues for growth.

Recreational marijuana is used as a psychoactive drug or a food ingredient and is available to consumers without a prescription. Very few states in U.S. have legalized its usage for recreational purposes. Through legalization of recreational marijuana, governments are trying to eradicate the black market and focus on gaining substantial amount of tax revenues levied on sale of these products.

Popular and Award Winning Genetics Zenpype cannabis seeds bank SHOP

Grown from certified seeds. Zenpype CBD products SHOP

12 000 Members Strong Zenpype Cannabis Community JOIN

Medical Application Insights

The application areas for marijuana can be classified into chronic pain, mental disorders, cancer, and other medical conditions. Chronic pain accounted for the largest share in 2018 and is expected to grow at a lucrative rate over the forecast period. This due to a large patient base and a number of medical conditions/trauma associated with chronic pain. On the other hand, the number of medical indications for which marijuana is used are increasing with favorable reforms in state regulations.

Use of cannabis for mental disorders such as epilepsy is permitted in most U.S. states and is therefore the fastest growing medical application segment. Moreover, as cannabis has been found to be useful for the treatment of epilepsy, the prescription and adoption rate for the same is also high. Moreover, the number of people suffering from epilepsy have increased over the past few years. For instance, according to Centers for Disease Control and Prevention (CDC), the number of adults suffering from epilepsy in 2010 increased from 2.3 million to 3 million in 2015.

Product Type Insights

The buds segment dominated the U.S. cannabis market in 2018 with a revenue of USD 7.8 billion and is expected to grow at a lucrative rate over the forecast period. Dried buds are used for smoking and have found widespread application in treating a variety of diseases like cancer and Alzheimer’s. Furthermore, buds are more affordable than oral products or tinctures, which increases its adoption.

The oils segment is anticipated to witness the highest growth during the forecast period. This growth can be attributed to increasing emphasis on prescribing oils for children for treatment of disorders like epilepsy. Smoking marijuana has posed difficulties in quantifying accurate information about the consumption of CBD, THC, and other components that are part of the dosage.These advantages of medical marijuana oils compared to smoking, along with increasing preference for marijuana oils by doctors, are expected to drive the oil segment over the forecast period.

Regional Insights

California accounted for the largest share in the U.S. market in 2018 and is expected to grow at a significant rate over the forecast period. The market expansion in this state can be attributed to expanding population base and growing number of cannabis businesses. Furthermore, the state has legalized both forms of marijuana use i.e. medical and recreational, which considerably increases product adoption.

New standards pertaining to the medicinal use of marijuana were established in 2015. There were updated regulations implemented for growing and licensing of cannabis businesses. Later, in 2016, Proposition 64 was sanctioned, which legalized recreational use of marijuana in the state. This legalization opened up various avenues of increasing revenue, such as surge in employment, long-term benefit for investors in this business, and revenue generation for the government.

The state of New York also accounted for a major revenue share in 2018 as a result of cannabis legalization for treating medical conditions such as chronic pain and mental disorders. The number of people using marijuana is anticipated to increase owing to less limitations, lower prices, and ease of access. Furthermore, the state government is expected to legalize recreational use of marijuana in 2019 and levy taxes on marijuana and its products, which is expected to exponentially drive the market over the next few years.

U.S. Cannabis Market Share Insights

Some of the players operating in the U.S. marijuana market are Green Man Cannabis, Los Suoenos Farms LLC, and Vireo Health of New York. Industry players are focusing on increasing their penetration in the state within which they operate to strengthen their foothold. For instance, in January 2018, Green Man Cannabis launched ONE Cannabis, a cannabis retail franchise in U.S. This franchise is focused on providing optimal retail experience to modern marijuana consumers, while making it more accessible and acceptable in the U.S. market.

However, the ban on inter-state trading across the country is expected to hamper market growth and this has created a demand and supply gap due to surplus production in some states. Furthermore, the banking sector has witnessed a change after the legalization of cannabis in various states. Banking access still remains a problem for cannabis businesses seeking financial help. One of the reasons for this is the illegal nature of recreational marijuana under federal laws. This is also the reason for certain banks not allowing accounts to such businesses, which has led to economic challenges and unfavorable situations.

source: www.grandviewresearch.com/

We don’t have subscription plans, nor do we lock our content so readers who show their support with purchasing cannabis seeds and CBD products help us keep doing this. Thank you for your support and for helping us improve!