By Claire Moraa
- The global marijuana market size is expected to grow to $102.24B by 2030
- Only 28% of the marijuana market in U.S. is legal
For years, many countries have dangled the decision on whether to legalize marijuana or not. And while the global marijuana market is steadily growing, now expected to reach $102.24 billion by 2030, the legal landscape remains complicated. The DEA recently moved to reclassify marijuana from a low potential for abuse and potential medicinal use to high potential for abuse and no medicinal use. This reclassification has a ripple effect on how businesses operate in the cannabis market.
Why This Matters: It’s no doubt that marijuana is a fast-growing industry but, legalizing it has two possible extreme outcomes. On one hand, legalization could potentially expand the market for marijuana products, leading to increased sales and potentially higher stock prices for companies in the industry. On the other hand, it can also increase competition and regulatory challenges, which may impact the profitability and valuation of existing weed companies. Part of the reason why the marijuana market is thriving is because it is illicit.
Currently, only 28% of the marijuana sold in the U.S. is legal. If legalized, there could be an influx of new entrants in the market. With more companies entering the market, the likelihood of an oversupply of cannabis products is inevitable. And when investors have little to no control on the price, this often results in price reductions, which can erode profit margins for producers. Further, too many producers means everyone has to step up their game for product differentiation and securing a niche. This means pumping more money into development and research in order to stand out. These market dynamics can make the stock prices fluctuate with increasing volatility in the market.
What’s Next: The legalization of weed is definitely a complex topic that needs to be looked at objectively. The number of people abusing the drug is extremely high—61.8 million people. While short-term challenges and volatility may result from legalization, the long-term growth potential of the industry could still be significant. Producers can focus on expanding their product profile and emphasizing on quality while investors can diversify their portfolios to minimize the risk.
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