Cannabis at The Crossroads

The following exchange of dialogue, from the buddy stoner flick Harold and Kumar Go to White Castle (2004), encapsulates the mainstreaming of marijuana.

Kumar: “Yo, this is worth 40 tops bro!”

Hippie pot dealer: “Bro? I’m not your bro…bro. Okay? And that’s 80 bucks. You don’t feel like getting high tonight? If you don’t feel like getting high, that’s cool with me because there’s lots of people around here.”

Kumar: “What kind of a hippie are you?”

Hippie pot dealer: “What kind of hippie am I? Man, I’m a business hippie. I understand the concept of supply and demand.”

So what do fundamental economic laws, such as supply and demand, say about the marijuana industry this year? Let’s look at the latest marijuana industry data, for clues as to pot’s future direction and growth.

The year 2023 was difficult for the cannabis industry, but that was then and this is now. The cannabis industry this year stands at the crossroads, as it faces a mix of challenges and opportunities.

After a prolonged slump last year, marijuana stocks as a whole are making a comeback. Many inherently solid pot equities are positioned to soar and they’re currently trading at attractive valuations.

Federal legalization of marijuana has stalled in the sharply divided Congress, but states and localities aren’t waiting for Uncle Sam to act. Besides, the 118th Congress is so dysfunctional, it has been the least productive in several decades. The people at the grassroots, so to speak, have taken the matter in their own hands.

Currently, 38 states and the District of Columbia have made it legal to use cannabis for medical reasons. There are also 24 states (plus DC) where using cannabis recreationally is legal.

With more states legalizing either medical or adult-use markets, legal sales are projected to sharply rise in 2024 and beyond, according to the latest statistics from New Frontier Data. The research firm determined the following:

  • Oldest legal adult-use state cannabis markets are experienced declining revenues, due to a glut of product and fierce competition.
  • Newly legalized East Coast state markets serve as a solid foundation for growth of the industry in the medium term, posing a challenge to the West Coast’s historical dominance of the nationwide cannabis market.
  • Legal sales are on track to top $71 billion by 2030 with 18 additional states positioned to legalize either medical or adult-use in the next decade.
  • 96% of Americans will live in a state with some form of legal cannabis access if all 18 new states successfully pass legalization measures.
  • Political opposition in historically conservative states will continue to resist legalization efforts, but with that said, a greater number of Republicans are starting to jump onto the pro-pot bandwagon.
  • Registrations for medical programs trend up in medical-only states bordering newly legal adult-use states and trend down in states that legalize adult use on top of existing medical programs.
  • Broader macroeconomic factors such as inflation, high taxes, and the black market will serve as headwinds for revenue growth in 2024 but, paradoxically, won’t significantly impede surging levels of consumer demand for legal cannabis.

Among the most promising marijuana investments are companies that function as multi-state operators (MSOs), especially in marijuana mega-states.

Competition is fierce for customers and regulatory approval in customer-rich jurisdictions. These states (e.g., California and New York) are proving to be the most powerful magnets for investment cash and venture capital activity. They’re also home to the greatest amount of mergers and acquisitions among cannabis companies. Consolidation, in turn, is strengthening the profit margins and balance sheets of cannabis firms that previously struggled to make money.

In this U.S. election year, an increasing number of lawmakers on the federal, state, and local levels will feel greater political pressure from the majority of Americans who support lifting restrictions against marijuana. Even if legalization remains stalled in Congress, initiatives to legalize marijuana will appear on a slew of state ballots in November 2024.

Pot’s Global Reach

It’s not just America. New Frontier found that cannabis consumers globally spent an estimated $42 billion on legal high-THC cannabis in 2023, with annual legal spending projected to climb to $51 billion by 2025. The numbers are vastly higher if illicit sales are included (see the following chart).

There’s ample room for growth in the international cannabis market because much of the world still hasn’t legalized pot and a huge amount of global demand stems from unregulated black markets.

Throughout 2024 and beyond, marijuana will provide proactive investors with huge gains. But before you put your money into pot stocks, you need to be informed.

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John Persinos is the editor-in-chief of the premium trading service, Marijuana Profit Alert.

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This article previously appeared on Investing Daily.