As I sat outside today at a local burrito joint in Denver near DU, I couldn’t help but overhear a brief conversation about costs for a dispensary to provide flower to their customers and the business ramifications of said pricing. The conversation is a sign of the times in one of the country’s most successful cannabis markets. Colorado is setting an example for the rest of the country on how legalization can work.

The cannabis industry is the fastest growing industry in the United States, and it’s forecasted to reach $22 billion by 2020. California’s legalization measure just qualified for the November ballot. Legalization continues to gain steam, and a recent poll says that 89% of the country would like to see medical marijuana legalized. All of this is leading to the next stage of this movement that I like to call “Weed 3.0.”

 

Weed 1.0: The Beginning

Weed 1.0 started back when Amendment 64 passed here in Colorado on November 6, 2012 alongside a similar measure in Washington state, Washington Initiative 502. The moves were heralded as “an electoral first not only for America but for the world.” With the passing of A64, the measure was effective within 30 days, and the first recreational stores opened on January 1, 2014.

The first day recreational cannabis was available for sale in Colorado, the media coverage was outrageous. Which would be expected, as it signaled the beginning of the ending of prohibition. Since then, the popularity of cannabis tourism has exploded, especially in Colorado where monthly marijuana sales are now routinely breaking the $100 million mark.  The numbers include both recreational and medical cannabis sales.

Even Colorado, whose economy relies heavily on ski tourism, has seen even higher tourism numbers since Amendment 64 passed. Denver had a record-breaking year with 16.4 million visitors in 2015, which is 1 million more visitors than the year before.

As a citizen of Colorado, visiting other states that have prohibitive marijuana laws now feels very backwards to me. The normalization of marijuana continues with things like painting classes with cannabis instead of wine, “Bud and Breakfast,” and ganja yoga. As the normalization of cannabis grows and the stigma retreats, more people have begun to try it out. In the past decade, Baby Boomer usage of cannabis has doubled. One of the main reasons for this is due to the medical benefits of cannabis that’s allowed them to find relief from aches and pains, amongst other conditions.

 

Weed 2.0: Investment

The next stage of the evolution of this cannabis movement is the investment piece. Since the federal government has seemed to leave the marijuana issue to the states, investment has begun to pour into the industry by those investors seeing the opportunity before them, which has been likened to the beginning of the end of Alcohol prohibition if you started a major beer label. The stigma is receding with large companies like Microsoft, who announced last week they would enter the market with a seed-to-sale tracking system of their own, teaming up with KIND Financial to launch its Microsoft Health and Human Services Pod for Managed Service providers.

A large company like Microsoft brings expertise, software, IP, and hefty bankroll into the industry, which not only will help bring the industry to the “next level” in one respect, but will also encourage other companies to dip their toes in the bong water. Having a major company like Microsoft Corp. makes it much easier for companies to make the case to enter the market.

Even prior to Microsoft Corp., the investment into the industry had been coming in at a rapid clip. The market is very attractive to investors, and that’s evident in 2015 in which cannabis companies secured more than $215 million in venture capital. The launching of 6 marijuana markets last year, and with 12 states with some kind of marijuana legislation on the ballot this year, you can expect investment to only increase from here.

Nevada launched their state medical market in 2015 which allows for reciprocity, and it’s expected that they will pass recreational cannabis in 2016. The Nevada market will be huge for recreational market, and the sky is the limit. Sin City knows fun. They will do marijuana right.

 

Weed 3.0: Rescheduling and Beyond

The third stage of this revolution has been going on in 2015 and through 2016. The last year and a half has been characterized by continued growth in existing regulated markets.  One of the interesting pieces to this stage is that the beginning of consolidation of operators in legalized markets has begun. So this means there have been/will be foreclosures, mergers, and sales of cannabis businesses that want a payout, or can’t afford the costs on their own.

At this point in time, there are 25 states (as well as D.C.) that have legal medical cannabis, which makes up more than half of the U.S. The attitude by the entire country on the medical aspects is overwhelming support, though Congress continues to drag their feet.

One piece of the puzzle that will now allow for more investment into the industry in Colorado is the allowance of out-of-state ownership and operation of a cannabis business. Not only will this help the cannabis industry to grow, but as well as stand on an equal footing with normal businesses.  Oregon passed a similar measure earlier in the year.

New York has also launched their medical marijuana program which was signed by Gov. Andrew Cuomo into law in November 2015. The program allows doctors to prescribe oil extracts from cannabis for only those patients with chronic or severe conditions like HIV/AIDS, Parkinson’s disease or spinal cord injuries.  New York has also made an effort to hand out more tickets and summonses for cannabis possession instead of arrests. Although a step in the right direction, the measure has been met with accusations of racism, since 92.55% percent of people arrested last year for marijuana offenses were minorities.

There has been many cannabis rescheduling rumors since the Drug Enforcement Agency announced in April that it intended to decide on reclassifying marijuana in the first half of 2016. Cannabis currently sits with a Schedule I status, meaning it has no medical uses and has high opportunity for abuse. It’s lumped in alongside Heroin, LSD, Ecstasy, and Peyote. A point that has been highly contested by advocates, patients, and doctors nationwide for years.

The rescheduling of marijuana will be huge regardless of whether it goes to Schedule II or Schedule III. Once the rescheduling happens, you will see the floodgates of investment money pour into the industry. There have been many rumors on what will happen with rescheduling. I wrote an article a couple weeks ago that discusses the possibilities of existing medical marijuana markets and if they will be included in a new system or be boxed out by prohibitively expensive product FDA approval costs (at least $1B per product), or if favored established industries in pharmaceutical, agriculture, and tobacco will take over.

 

Weed 4.0: 2017

Looking ahead to 2017, what will the landscape of the industry look like? If California passes the Adult Use of Marijuana Act, then the California market will open and likely become the largest cannabis state in the country. The implications for one of our countries largest states, and most populous, will be huge.

In July, Congress will consider a bill that would legalize the farming of industrial hemp in the US. With California growing much of the country’s fruits and vegetables due to it’s ideal climate, California could become a hemp powerhouse very quickly. The uses for hemp are staggering. It is a great source for ethanol as opposed to corn, and it’s a valid alternative to plastics.

A big problem that still plagues the industry (due to cannabis’ Schedule I ranking) is major banking institutions and credit cards do not work with the industry. This requires cannabis businesses to work on a cash-only basis, which invites crime, and is extremely inefficient. If you see the rescheduling of cannabis this year, then you can expect for the banking solutions to continue to evolve, and for cannabis businesses to start operating like traditional businesses.

Even though the Obama administration announced in February 2014 that the federal government wouldn’t come down on any banks that accepted money from legal dispensaries, we still sit here two years later without access to the largest banking institutions in the world. Banks hate grey areas, and without rescheduling of de-scheduling, it is most definitely a grey area. At this point, the hesitancy to work with legal cannabis businesses is likely reputational, and the first large banks that enter the industry will turn banking solutions on its head.

One of the other big changes we will see with cannabis in 2017 is the earnest medical research that will begin to take place across the country. Companies will be able to map the cannabis genome, and begin to understand which cannabinoids will work best for different conditions, and which strains will provide the most relief to patients. Better understanding of the plant will allow for selective breeding to achieve the most ideal strains for whatever condition you might have.

 

Weed 5.0: 2018 and Beyond

What does 2018 and beyond look like for the cannabis industry? Based upon everything moving along this timeline, you can expect for the launching of pharmaceutical grade medicinal cannabis-based products. Products that will likely remove the “high” from the pill, and will alleviate specific symptoms will enter the market. Will these new products cost an arm and a leg like many pharmaceutical products? Time will tell.

With a successful nationwide medical market, more states that will inevitably pass their own recreational laws within the next several years, and it will prompt the federal government to make some kind of federal legalization of cannabis nationwide.

As I finished up my burrito, I can still hear them discussing demographics and affordability for products based on their various dispensary locations around Denver. It still astounds me that I can walk into a dispensary and buy an ounce of cannabis while people in states like my childhood home of Georgia would have their lives ruined over such an amount. As the wheels of change continue to turn, hopefully we will turn the corner and no longer have to worry about being thrown in a cage for enjoying a plant.

 

Jordan Bentle is the Digital Marketing Chief for Chiefton Supply Co. and General Cannabis Corporation in Denver, Colorado.

Chiefton Supply Co. creates Cannabis inspired art apparel, as well as provides design, and branding services to Cannabis businesses. For more information or to set up a consultation contact Jacob@chieftonsupply.com.

 

 

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