The legalization of marijuana has been undeniably rapid. Considering that just under twenty years ago all forms of cannabis were banned in every single state, it is certainly eyebrow-raising that the product is quickly becoming a lucrative industry poised for sustained growth well into the future.
The rise of the cannabis market is largely attributable to the political developments associated with its increased legalization. The recently elected Biden administration has made clear its plans to support the continued expansion of the industry on the federal level, while a growing number of state governments have opted to legalize cannabis independently. This multi-tiered legislative backing, coupled with the fact that the cannabis sector has weathered the economic fallout amidst the ongoing pandemic surprisingly well, makes it an attractive option for investors and entrepreneurs alike.
The following is a forecast of anticipated events in the coming year that will likely install cannabis as one of the most promising emergent domestic markets.
Increased Governmental Support
The Biden presidency will undoubtedly be more open to the growth of the cannabis industry as compared to Trump; however, comprehensive legalization of the product is not expected. Biden was one of the few Democratic figureheads to not publicly endorse the federal legalization of marijuana during the primaries, making it unlikely he will do so now that he is in office. Still, he has promised to cease criminalizing the use and possession of cannabis—an action that could be a precursor to the eventual federal legalization of the product.
Federal Acts’ Impact on Cannabis
Such action may already be in the works. Last December, the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) was passed by the House of Representatives. With the Democrats now enjoying a majority in the Senate, there is a chance that it could be implemented over the next four years. Additional legislative action supports the notion that cannabis is poised for growth. The Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act) would offer federal protection to cannabis companies that remain compliant with state-level regulations whilst further increasing access to funding options.
Another well-publicized statute is the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), which extends federal protective measures to financial institutions and insurance entities that collaborate with cannabis businesses. Although the bill was given the thumbs up by the House back in 2019, it stagnated in the Senate and never came to fruition. But clauses from the failed SAFE Act have been revived in several COVID-19 relief measures that have been passed by Congress, and the law in its entirety could be reconsidered if it is modified to incorporate measures in support of the growing hemp industry. Internationally, cannabis regulations are similarly being eased—with the U.N. recently reclassifying marijuana so that it is no longer in the same category as more serious drugs. The development both supports the domestic push for widespread legalization, but also signals the coming growth of cannabis utilization for medical and research purposes on a global scale.
Growth of State Legalization
In November 2020, an additional five state governments opted to legalize cannabis—making it 35 jurisdictions permitting medical use and 15 allowing adult use. A number of other states have signaled their intent to pass similar legislation in the coming months. Now that nearly one third of the United States’ population is living in a state where cannabis is legalized in some form, it appears that it is only a matter of time before it is permitted on a national scale. From a local government perspective, it seems illogical to pass up on the potential tax revenue that could be garnered via legalization.
New York, prompted by New Jersey’s recent move to allow adult cannabis use is expected to implement similar steps this year, with Pennsylvania, Connecticut and Maryland almost surely following in the near future. As always, money is a key motivator when it comes to legalization—particularly with the economic hit many states are facing in light of the pandemic. Many financially struggling states are willing to generate additional revenue and employment opportunities by legalizing marijuana. States have to look no further than Colorado, where the state government has collected more than $1 billion in cannabis tax revenue in just under two years following its decision to legalize the industry.
Consolidation & Branding Explodes
The investment potential of the cannabis industry is strong at the moment—partly due to the fact that because it is considered “essential” it did not take the same economic hit that the retail and hospitality industries did during the height of the COVID-19 outbreak. The sale of medical and recreational marijuana products exceeded $15 billion in 2020 and the upward trend is projected to continue through 2021. These statistics will prompt a surge in mergers and acquisitions across the market as MSOs that bided their time during the uncertainty of the pandemic seek to acquire regional cannabis companies to take advantage of the dynamic marketplace. The solidification of the cannabis sector in conjunction with the increased legalization will prompt the development of multi-state corporate entities. This will in turn lead to a more cohesive marketplace that will benefit both users and businesses alike.
The Future of Cannabis is Bright
Although 2020 was full of surprise in nearly every facet of life, it has also set in motion the political and economic wheels necessary for the sustained growth of the cannabis industry throughout the coming year and beyond. Savvy investors aware of these market dynamics could stand to take full advantage of the market’s growth. This also means that commercial lenders who have not previously considered lending to borrowers in the cannabis industry, or who normally avoid collateral affiliated with cannabis, may want to look into how to underwrite such transactions so they can stay competitive.
