Consumer Products

Where to Make Money in the Legal Cannabis Business

Growing the plants and eventually selling them at retail outlets are just two pieces of a legal market that can be broken down into a number of other business opportunities. In its 2016 Factbook, Marijuana Business Daily has sliced the market into six discrete businesses:

  • Medical dispensaries/recreational stores
  • Infused products manufacturers
  • Wholesale cultivators
  • Testing labs
  • Ancillary services firms
  • Ancillary technology and products companies

Sales of marijuana and certain derivative products for either medical purposes or recreational use by adults is legal in 24 states and the District of Columbia. Several more states could be added to the list after the November 2016 elections, with California’s effort to legalize recreational marijuana use after 20 years of history with legal medical marijuana use as the big prize for legalization advocates.

According to Marijuana Business Daily, nearly 60% of dispensaries and stores are either modestly or very profitable. Another 29% are breaking even.

The most profitable part of the market, however, is testing labs, where 67% of the businesses are very profitable and the remaining 33% are modestly profitable. Everyone is making money here, and this stands to be an even more successful part of the marijuana industry because state regulations related to pesticide use and product potency are beginning to be more widely implemented and growers and retailers will have to meet these new regulations.

More than half of infused product manufacturers are either very or modestly profitable, and nearly 70% of ancillary services firms also report profitability. And while more than half of ancillary technology firms are also profitable, some 8% are “losing a lot of money.” All told, some 26% of these tech firms are losing some or a lot of money, the worst performance of any segment in the cannabis industry.

The legal cannabis market in 2015 in the United States rose 24% to a total of $5.7 billion, up from $4.6 billion in 2014. If California does legalize recreational marijuana use, by 2018 the total state market for cannabis could reach $6.6 billion, according to the fourth edition of the “State of Legal Marijuana Markets” report compiled by New Frontier and ArcView Market Research, up from $2.7 billion from medical marijuana sales alone in 2015.

Another research report from New Frontier and Arcview forecast legal retail sales in 2020 rising to $21.8 billion. Adding in the knock-on effects of $3 for every $1 of legal sales raises the total economic impact of the cannabis industry to nearly $88 billion. There is no other industry in the U.S. currently expected to grow at that rate.