The industry is also asking the federal government to allow interstate commerce between states that have legalized. Right now, if a company has a manufacturing plant in, say, Colorado and wants to transport some of that product to its dispensary in Montana, that’s trafficking — a pretty serious crime. And it’s time-consuming and expensive to build infrastructure everywhere.
In fact, some of the biggest challenges in getting licensed weed businesses off the ground are around the regulatory hurdles and costly process of having to work piecemeal in expanding around the U.S. That’s helped the illicit weed market maintain a competitive advantage by undercutting prices. In California, where marijuana can be legally purchased, illegal transactions are still estimated to make up the overwhelming majority of sales.
It’s no wonder that pot stocks — at one point the darlings of the market — have lost their exuberance this year. The so-called cannabis index has dropped 38%. In one example, beleaguered multistate operator MedMen Enterprises Inc. was forced to walk away from Virginia, where a limited but potentially lucrative medical marijuana market is just beginning to open up; its shares have slumped 73% this year.
An unintended effect of squelching the market may be to drive cash-strapped cannabis companies into the arms of food and beverage giants, which are preparing to pounce on pot once laws become more lax. For brewers and tobacco companies, it may be the most promising growth avenue. That said, a bunch of upstarts getting swallowed by behemoths would seem to go against Democratic legislators’ efforts to level competitive playing fields through more aggressive antitrust enforcement.
Everyday consumer products are a key way for cannabis companies to target a wider customer base than pot smokers. Canopy Growth Corp., one of the biggest U.S. medical marijuana producers, valued at $9 billion, wants to start selling drinks containing THC — the psychoactive chemical in cannabis — next year to compete with beer. Even though Canopy is backed by liquor conglomerate Constellation Brands Inc., it’ll be tough going up against Anheuser-Busch InBev AB, which controls 42% of the North American beer market.
Bit by bit, things are moving in a positive direction for the industry, albeit slowly. Meanwhile, cannabis companies have strategically entered states where medical marijuana is allowed so that they're ready to roll once recreational use for adults is made legal. For example, the more immediate winners of last week’s ballot measures include Curaleaf Holdings Inc., a $5.9 billion company that holds the No. 1 market share in New Jersey and No. 2 in Arizona, and Harvest Health & Recreation Inc., which gets 50% of its sales from Arizona, according to a Nov. 4 report by Pablo Zuanic, an analyst for Cantor Fitzgerald & Co. New York and Pennsylvania are expected to be next, with budget shortfalls caused by Covid-19 potentially incentivizing them to move faster on the issue.
At the national level, if Biden is looking for common ground with Republicans, marijuana of all things seems like a reasonable place to start. The year 2020 truly is bizarre.
This article was provided by Bloomberg News.