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CANNABIS CORNER: Part 1: Snapshot of the Legal Cannabis Market at Year’s End

Traders Magazine Online News, December 10, 2018

Sachin Barot

I field several calls daily from former trading associates inquiring about investing in cannabis. Itís easy to skip the basics, but that can lead to confusion and missed opportunities. Iíve enlisted the help of cannabis business intelligence leader New Frontier Data to provide an editorial series for Traders Magazine outlining the fundamentals of this rapidly evolving industry. -SB

With an increasing majority of Americans supporting cannabis legalization, and the industry generating $10.3 billion in sales throughout 2018, it is a seminal time for investors and operators seeking entrance and opportunities in this fast-growing sector.

Through results from state ballot initiatives in the November 2018 elections, medical cannabis is now legal in 33 states (nearly 2/3 of the U.S.) and the District of Columbia (D.C.), while cannabis has been legalized for adult (i.e., recreational) use in 10 states and D.C.

Based on the election results, New Frontier Dataís revised U.S. forecast for the combined medical and adult-use state markets is on track to grow to $17 billion in 2020, and $25.7 billion by 2025. Meanwhile, with large states like California and Michigan now fully legal, the adult-use marketsí share of those sales will double, from 22% in 2018, to 44% in 2025.

As of the first week of November, the total market cap of the top 15 cannabis companies was about $24.3 billion.

New Frontier Data analysis shows that were cannabis fully legal in all 50 states, it would at minimum create $105 billion in combined federal tax revenue by 2025. Based on an estimated 15% retail sales tax, between 2017 and 2025 the federal government would collect $46 billion in sales tax, $20 billion from business tax, and $39 billion from payroll deductions from a legalized market ó entirely new revenue from an industry which on the federal level remains illegal.

In October, Canada became the first G7 member nation to legalize cannabis nationally, though now the supreme courts of both Mexico and South Africa have declared that prohibition violates their citizensí civil rights. The Canadian marketís opening means that the entire northern contiguous U.S. border with Canada includes legal markets on both sides for all but a 45-mile stretch in Idaho.†

The popularity of cannabis has been borne out among U.S. state markets. As confirmed through a nationwide survey released in October by the Pew Research Center, more than six-in-10 Americans (62%) favor legalization, maintaining a steady increase over the past decade. Though the share of U.S. adults supporting legalization changed little from 2017 (with 61% favoring it), it has doubled since 2000 (31%).

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