Sales of legalized cannabis projected to hit $6.7 billion in 2016.

Why Legal Marijuana Could Be a $6 Billion Industry in 2016

Why Legal Marijuana Could Be a $6 Billion Industry in 2016

Moneybox
A blog about business and economics.
Feb. 5 2016 4:44 PM

Why Legal Marijuana Could Be a $6 Billion Industry in 2016

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Dank and lucrative.

Raul Arboleda/AFP/GettyImages

This post originally appeared in Inc.

Crack all the stoner jokes you want, but America's homegrown marijuana industry is expected to bring in $6.7 billion in 2016, a new report estimates. Across 23 states and Washington, D.C., recreational and medical sales have surpassed $5.4 billion in 2015, up from $4.6 billion the year before, according the fourth annual State of Legal Marijuana Markets report.

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The ArcView Group, a cannabis investment and research firm, and New Frontier, a marijuana big data and analytics company, co-published the report, using data collected from government agencies, legal cannabis businesses, drug law reform advocates, and academic and medical institutions. The industry as a whole grew 30 percent year over year. Adult use market sales, which is only recreational sales for anyone over 21, grew from $351 million in 2014 to $998 million in 2015, a 184 percent increase.

While marijuana is still illegal under federal law, legal medical marijuana markets have been opened across the country, with Colorado, Washington, Oregon and Alaska opening recreational markets as well. Right now, 86 percent of Americans live in a state that allows some degree of legal cannabis use. A recent Gallup poll finds that 58 percent of Americans support legalization for adult use, up from 36 percent 10 years ago. (A different poll by Harris found 81 percent of Americans support medical marijuana.)

The changing attitudes toward marijuana has given birth to the state-by-state legalization efforts that have brought a chunk of the industry from the black market into mainstream commerce. Colorado was the first state to legalize adult use in 2012 and its market has been open for only two years, bringing in $135 million in taxes from cannabis sales and license fees (up 77 percent from $76 million in 2014). In the next five years, Washington state expects to bring in $636 million to the state.

The members of ArcView's investor network invested $45 million into 66 companies in 2015. Last year also brought greater investments across the industry: country music artist Willie Nelson's cannabis company, Willie's Reserve, secured an undisclosed sum of private equity and Privateer Holdings, a cannabis investment firm backed by Peter Thiel's Founders Fund, raised $75 million to grow its companies, one of them being Marley Natural, which was formed with reggae star Bob Marley's living family members. Snoop Dogg, hip-hop artist-turned-investor-and-businessman, started pot-centric fund Casa Verde Capital with $25 million and also started his own marijuana brand named Leafs by Snoop.

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The report says one of the major hurdles for the industry is banking. Due to the fact that marijuana is federally illegal, banks are apprehensive to serve marijuana and marijuana-related clients. The report found that only 30 percent of companies that touch the plant has a bank account while 51 percent of ancillary businesses have secured banking.

Looking ahead, the report says 2016 could be a big year for cannabis as seven more states could potentially legalize it: Arizona, California, Massachusetts, Maine, Nevada, Rhode Island, and Vermont. Florida, Ohio, Missouri, and Pennsylvania will vote on passing medical marijuana laws. As more markets open up, demand is expected to rise 25 percent and the industry should hit $6.7 billion in sales this year. By 2020, nationwide sales could reach $21.8 billion, the report says.

One of the major challenges that comes with this rapid growth, and one begging for an innovative startup to fix, is the industry's electricity consumption. The marijuana industry is the most energy intensive agricultural crop produced in the U.S., the report finds. Growing cannabis indoors consumes 1 percent of the nation's electricity. To put that into perspective, 1 percent is equivalent to 1.7 million homes and costs $6 billion a year.

As the industry grows and more black markets become legitimate state by state, entrepreneurs will find more and more opportunity. "Many in the business and financial sector have taken a 'wait and see' approach to the legal cannabis industry," says Troy Dayton, CEO of the ArcView Group. "The new data confirms what pioneer investors and entrepreneurs suspected. Legalization of cannabis is one of greatest business opportunities of our time and it's still early enough to see huge growth."