It's the world's most commonly cultivated, trafficked and used illicit drug, and as the push for legalization at home and abroad grows, marijuana is garnering significant attention from investors, manufacturers and researchers.
Despite the plant being illegal under federal law as a Schedule I drug, the U.S. legal marijuana industry was estimated at $10.4 billion in 2018 with 250,000 jobs devoted to the handling of plants, according to New Frontier Data. Ten states have now legalized marijuana for recreational use, and 33 states in total have legalized it for medical use.
A Pew Research survey says that 62% of Americans believe the use of marijuana should be legalized. This is double what it was in 2000 (31%), and fives time what it was in 1969 (12%). A New York University study revealed the percentage of adults aged 50-64 reporting marijuana use has doubled in the past decade to 9% and use among adults 65 and older has increased seven times during the same period to nearly 3%. The U.S. marijuana industry will generate $17.5 billion in tax revenue by 2030, according to Cowen analyst Vivien Azer.
The stigma is being shed at a breathtaking speed, and it appears marijuana is on its way to the mainstream.
Marijuana has been used a medicine in different cultures for thousands of years. The federal law banning it in the U.S., the Marihuana Tax Act, was passed in 1937. There is now growing acceptance of the plant as a legitimate option for patients suffering from medical problems like chronic pain or seizures in modern-day America.
This is mostly thanks to Cannabidiol or CBD – a natural compound found in cannabis plants that is non-psychoactive, meaning it doesn't make the consumer high. It is sold as an ingredient in oils, oral sprays, creams, pills or edibles like gummies. Purveyors claim CBD can provide relief from pain, combat anxiety and depression and even fight cancer.
It's true CBD is having its moment; "CBD gummies" was the third-most searched food-related term on Google in the U.S. last year. Large companies like Corona owner Constellation Brands Inc. (STZ.B) and Marlboro cigarette maker Altria Group Inc. (MO) have bought multibillion-dollar stakes in marijuana companies. But forecasts for the CBD market argue this isn't just a temporary wellness craze. New Frontier Data estimates the market for CBD derived from hemp will grow from a $390 million-dollar market in 2018, to a $1.3 billion market (or 3.3x) by 2022. Brightfield Group says the hemp CBD market can reach as much as $22 billion by 2022. Defending its lofty prediction, Brightfield's managing director Bethany Gomez said, "We are a team of highly conservative analysts and we did not take this lightly - I honestly believe that these are conservative numbers. We have no rose-colored glasses in terms of the bizarre and challenging regulatory framework that surround this industry, it will always be two steps forward, one step back.
There are sure to be some problematic regulations and bumps along the way. But there is too much momentum, too much demand and too much potential for this industry not to explode."
The FDA and CBD: Softening Stance?
Under the current U.S. Food and Drug Administration's (FDA) rules, all drugs containing CBD, a Schedule I substance, require the agency's approval. In June 2018, the agency also approved a CBD (marijuana-derived) drug for the first time. GW Pharmaceuticals' (GWPH) Epidiolex was placed in the least restrictive Schedule V of the Controlled Substances Act by the U.S. Drug Enforcement Administration (DEA), which means it has a low potential for abuse.
Under federal rules, it is also illegal to market food products or dietary supplements that contain CBD, but the FDA indicated that may change in the future. In a December 2018 press release, it said, "Although such products are generally prohibited to be introduced in interstate commerce, the FDA has authority to issue a regulation allowing the use of a pharmaceutical ingredient in a food or dietary supplement," it said. "We are taking new steps to evaluate whether we should pursue such a process." The statement was published after the Farm Bill legalizing the regulated production of hemp, another source of CBD, was passed.
This is great news for many companies betting on the compound and dealing with its murky legal status. But can investors expect all CBD to be placed in Schedule V or unscheduled altogether soon? Not quite. It's not easy for CBD to be unscheduled altogether because of international treaties the U.S. has signed. And while Epidiolex qualifies for Schedule V, only other FDA-approved marijuana-derived drugs with low levels of THC can expect to join it there.
Since the explosion of marijuana products is almost certain, experts are now pondering what the industry might look like. Will large corporations come to dominate it and flood the market with a cheap and generic product? Ryan Stoa, a professor of law at Concordia University and the author of Craft Weed: Family Farming and the Future of the Marijuana Industry, told The Verge this will be difficult because of the variety of strains available and the consumer base's interest in locally made or locally produced artisanal products. "On the regulator size, states have a role to play," he said. "You already see states like California putting a cap or limit on the size of marijuana farms, essentially saying, 'If we’re going to legalize this industry, we want to spread the benefits to as many people as possible.' Other states are capable of replicating that model."
Technology is also shaping the industry. Weed delivery company Eaze has raised $37 million and is reportedly valued at $300 million. It recently announced it is creating a platform to ship CBD products to 41 states. On-demand marijuana and cannabis delivery service Dutchie last year raised $3 million from the venture capital firms of rapper Snoop Dogg and basketball player Kevin Durant among others. Expect to hear words like "machine learning," "automation," and "blockchain" used in relation to marijuana more often as well. MTrac promises to solve the industry's banking problems. CannaCloud is the Keurig for weed. Bloom Automation is building robots to trim and process cannabis.
With Jeff Sessions gone and the Democrats in control of the House, significant marijuana reform seems possible this year. Politico pointed out that 296 members of Congress (68%) represent the 33 states with at least medical marijuana, which means there are sufficient votes to pass long-awaited bills. There are already several bills in the new Congress pertaining to marijuana.
Marijuana companies raised $13.8 billion in funding in 2018, according to cannabis industry research firm Viridian Capital Advisors. This was four times the amount raised in 2017. We can expect this trend to continue, but important to the U.S. industry is also banking reform. Big banks are currently afraid of money laundering charges they may face if they work with these businesses. Besides the difficulty getting capital, this means tremendous risks and inconvenience for companies operating in cash. The American Bankers' Association has been pushing for more legal clarity and bridging of the gap between federal and state law, and we could see banks warm up to cannabis if bills like the SAFE Banking Act are passed.
More states may legalize marijuana this year, too, including New York, New Jersey, Illinois and Connecticut.
President Donald Trump’s nominee for attorney general, William Barr, has said he will not go after marijuana companies operating in states where the plant is legal. He also said that the current discrepancy between state and federal law is "untenable" and needs to be fixed. He supports a federal law that prohibits marijuana everywhere.
Several 2020 presidential election candidates including Elizabeth Warren and Kamala Harris have expressed their support for legalizing cannabis.