Cannabis Industry Annual Report Exec Summary
Cannabis Industry Annual Report Exec Summary
Cannabis Industry Annual Report Exec Summary
ANNUAL
REP RT
2017 LEGAL MARIJUANA OUTLOOK
EX EC U T I V E S UMMA R Y
SPONSORED BY:
TABLE OF CONTENTS
EXECUTIVE SUMMARY
Market Growth Continues to Exceed Expectations2
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EXECUTIVE SUMMARY
2016 2025
$6.6 BILLION $24.1 BILLION
29%
45%
55%
71%
Medical Total
Adult Use Total
Source: New Frontier Data
The medical market is projected to grow laws within the next decade, including the
at a 12% CAGR through 2025, from $4.7 rescheduling of cannabis from its current
billion in 2016 to an estimated $13.2 billion status as a Schedule I substance included
in 2025. During the same period, adult use in the ranks of the most dangerous drugs
sales are projected to grow at a 21% CAGR, to Schedule II or III status, or potentially a
from $1.9 billion to $10.9 billion. complete de-scheduling, which would bring
cannabis regulations closer to those for
N OT E : Projections are based solely on alcohol. However, the unpredictability of
the state markets that passed medical and the timing for the change to federal policy
adult use legalization initiatives as of January coupled with the uncertainty about the
2017, and do not include assumptions for any nature of the changes to the law prevent
additional states which may pass legalization any accurate prediction of the extent to
measures before 2025. which the national market will grow follow-
ing the changes.
Projections do not include assumptions
about potential changes to federal policy The dramatic industry expansion is fueled
before 2025. It remains possible that there by two parallel forces the addition of
will be sweeping changes to federal cannabis new legal markets as more states pass laws
$15 $13.39B
$10.84B
$10
$7.98B
$6.58B
$5
$0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Medical Total Adult Use Total
Source: New Frontier Analytics
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EXECUTIVE SUMMARY
Dont know 3%
A majority (55%) believe that it should be Most Believe Government Should Legalize
legalized, regulated, and taxed like ciga- Cannabis, End Failed War on Drugs
rettes and alcohol, while one-quarter (26%) Nearly two-thirds (63%) believe that the
feel it should only be legal for medical use. federal government should legalize can-
Meanwhile, 7% believe it should be decrim- nabisa striking contrast to the strong
inalized eliminating not only the criminal continued resistance within the executive
penalties for possession and use, but also branch and among many Congressional
any regulation by the government. lawmakers against federal legalization
of cannabis.
The strength of support for alternatives
to prohibition suggests that cannabis law Meanwhile, only 17% agree that canna-
reform will continue to see strong support bis prohibition enforcement should be a
in markets that have not yet legalized adult priority for the federal government, with
use. It also puts cannabis prohibitionists 13% believing that the federal war on
outside the mainstream of public opinion, drugs has been effective toward prevent-
suggesting that prohibitionists historically ing cannabis use.
strong influence on cannabis policy will
further wane in the face of broad-based With the majority of the public now sup-
popular support for legalization. porting full adult use, and a strong majority
believing that the governments cannabis
enforcement efforts have been ineffective,
VI E WS ON FEDERAL POLI CY
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EXECUTIVE SUMMARY
pressure will continue to build for either underscoring how medical cannabis has
Congress or the White House to adopt become a national consensus issue. The
a federal policy more in line with public strength of its support will make it extremely
opinion. The perceived failure of the gov- difficult for politicians opposed to medical
ernments war on drugs may align with the cannabis legalization to find constituencies
Trump administrations efforts to reduce the with whom such a message would resonate.
size of government by targeting programs it
deems to be ineffective. However, there remain concerns associ-
ated with cannabis that could undermine
A Strong Majority Supports public support for expanded legal access.
Medical Use & Opposes Roughly one-third (34%) of respondents
Criminalization of Cannabis Users believe that cannabis is highly addictive,
Nearly nine among 10 respondents (86%) and 28% consider it a dangerous drug. As
believe that cannabis has valid medical uses, these views are not held by the majority,
Manufacturing
Agriculture
Total 283,422
12%
DIRECT FTE JOBS
Management
16%
BY SECTOR
Direct 198,195
15%
35%
Indirect 45,590
22%
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EXECUTIVE SUMMARY
spurred by legalization. Furthermore, due It is also worth noting that, if the number
to the highly-diversified nature of the legal of states with medical or adult use law
cannabis industry, those created jobs span increases significantly over the next few
a range of sectors: MPG estimated that years, or if there is accelerated large-scale
more than one-third of the jobs (35%) were industrialization of hemp in the U.S., the
created in the retail sector, with 22% in total number of jobs that could be created
administrative roles, 16% in manufacturing, by the industry could be significantly higher
and 12% in agriculture. than these estimates.
$609 Million
2017 TOTAL RETAIL TAXES
$745 Million
$136
Million
$1.8 Billion
2020 TOTAL RETAIL TAXES
$2.3 Billion
$472
Million
It is worth noting that these revenue esti- and adult use sales, significantly exceeding
mates do not include taxes levied by county the states own projections for collected
or municipal governments, nor do they revenue. From that windfall, the state
include the taxes levied on producer and government has disbursed $256 million
processor sales. Consequently, the total to a range of programs, most notably
tax revenues generated in the states will be directing $119 million to the states school
significantly higher than what is collected construction fund. Likewise, cannabis tax
solely from retail sales taxes. revenues have provided for substance abuse
prevention programs ($7.2 million), jail-
EDUCATION PROGRAMS ARE based services ($5.1 million), and advanced
THE BIGGEST BENEFICIARIES research studies through the Colorado
OF CANNABIS REVENUES State University Cannabis Research Insti-
tute ($900,000).
Since adult use cannabis became legal in
Colorado in 2014, the state has raised more Realizing the impacts from such signif-
than $367 million from taxes on medical icant revenues, lawmakers increasingly
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EXECUTIVE SUMMARY
$0 $1 $2 $3 $4 $5 $6 $7 $8
MILLIONS
Source: Colorado Marijuana Enforcement Division/Colorado Department of Revenue
11%
REDUCTION IN DAILY
DOSES PRESCRIBED
95,672
85,148
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EXECUTIVE SUMMARY
95%
21%
31%
American population
63% living in states with
newly expanded access to
legal cannabis since 2016
32%
With passage of adult use measures in Island, each of which have proposed bills
California, Massachusetts, Maine, and to legalize adult use in 2017. If approved,
Nevada, the industr y achieved three cannabis would be legal in nearly all of New
important advances: First, it increased the England, marking a dramatic expansion of
number of legal adult use states to eight, legal markets.
plus the District of Columbia. Second,
with California, cannabis is now legal in Other successful legalization initiatives in
the most populous state in the country, 2016 included those passed in Pennsylva-
dramatically increasing the total potential nia and Ohio, expanding medical cannabis
size of the industry while establishing to two more of the countrys seven most
legal adult use markets across the entire populous states.
U.S. Pacif ic coast given the legalized
states of Washington and Oregon. Third, Taken together, with four new adult use
the industry can establish a beachhead markets and six new medical markets,
in the Northeast region after successful 2016 marked the most consequential year
measures in Massachusetts and Maine. for the expansion of access to legal can-
One result already has been to fuel nabis in the two decades since California
reform debate in the neighboring states embraced medical cannabis in 1996.
of Connecticut, Vermont and Rhode
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EXECUTIVE SUMMARY
VT
NH
MA
RI
CT
NJ
DE
MD
DC
HI
Also, notable among the 2016 election Additionally, such support for cannabis
results were the successes of legalization legalization during a time of deep political
initiatives in states which voted for Donald divisions on many other issues suggests
Trump. Historically, Republicans in general that the legalization of cannabis may be
have supported cannabis legalization at rates one area where lawmakers and the public
far lower than among Democrats. Yet in the can agreeably cooperate toward common
2016 cycle, states including Florida, Montana ground in advancing more equitable
and North Dakota all voted for Trump and reform policies.
passed medical use legalization by comfortable
margins. Such vote-crossover demonstrates
how medical cannabis legalization has become
less of a partisan issue than one which enjoys
increasingly universal support.
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EXECUTIVE SUMMARY
that crime does follow drugs, which today ahead. Conversely, if the administration
are more powerful and more addictive. adopts an aggressive stance against the
Regarding cannabis specifically, he added industry, with real threats of raids and
that I am dubious about marijuana; I am confiscation, growth will be more muted
not sure were going to be a better, healthier as entrepreneurs, investors, big businesses
nation if we have marijuana being sold at and financial institutions will naturally
every corner grocery store. become more hesitant to enter or expand
in the industry.
Suffice it to say that the industry will pay
close attention throughout 2017 to the
actions of the Trump administration toward
cannabis. If the administration adheres to
the status quo, upholding the Cole Memo
and allowing state markets to operate
unmolested, the industry will continue
to experience strong growth in the years
17 2017 C A N N A B I S I N D U S T R Y A N N U A L R E P O R T: E X E C U T I V E S U M M A R Y
EXECUTIVE SUMMARY
law face not only stiff fines and penalties, regulated markets, such as Colorado and
but are also subject to suspension or revo- Washington, businesses find it more diffi-
cation of their business licenses. cult to transition their operational processes
to meet the new regulatory requirements.
CANNABIS BUSINESS COMPLIANCE Conversely, in newly legal states where
VARIES WIDELY BY MARKET businesses are being built from the ground
up, operators have greater flexibility to
Analysis of compliance performance across design their operational processes and
markets revealed that operators in Illinois develop staff training processes from the
were most compliant, with a state-wide ground up to more seamlessly reflect the
average score of 97 on a 100 point scale. regulatory requirements.
A score of 100 means the businesses has
met every requirement specified by the The Costs and Risks of Non-Compliance
states cannabis regulations. Comparatively, Failure to meet regulatory requirements
businesses in California and Washington can be costly: Since adult use legalization in
were least compliant, with average scores of 2014, Colorado has levied more than $1.9
74.4 and 77.3 respectively. million in fines for operator violations in the
medical and adult use industries. Addition-
NOTE: While all businesses should be scoring ally, in 2016, a total of 70 operators, or 3%
100 on the compliance assessment, the higher of licensed businesses in the state, had their
the score the less likely the businesses is to licenses suspended for non-compliance.
face punitive action by the state.
The imperative to achieve full compliance
HOW DO CANNABIS has taken on new urgency as statements
BUSINESSES FAIL? by the Trump administration have indicated
there may be increased enforcement of
Based on frequency of occurrences among federal prohibition in legal adult use markets.
all inspection types, the top five infrac- Businesses which are least compliant now
tion areas across 15 categories of cannabis face the highest risk of federal enforcement
compliance that Adherence Compliance action, in addition to increased state-level
monitors include: enforcement activity as states become
more aggressive in ensuring licensed oper-
Why Newer Markets are Performing Better ators meet the letter of the law.
Among the reasons for wide market vari-
ability is that in well-established but loosely
Delivery Services
LEGAL MARKET New insights into the behaviors, preferences
EXPANSION and profiles of cannabis delivery services
PRESENTS GROWTH users in California. Through a partnership
OPPORTUNITIES, with GreenRush, the leading platform on
19 2017 C A N N A B I S I N D U S T R Y A N N U A L R E P O R T: E X E C U T I V E S U M M A R Y
EXECUTIVE SUMMARY
COPY EDITING
J.J. McCoy, Senior Copy
Editor, New Frontier Data
Adherence Compliance
Baker
Dr. Guillermo Moreno Sanz
Full Circle Research
GreenRush
LeafLogix
21 2017 C A N N A B I S I N D U S T R Y A N N U A L R E P O R T: E X E C U T I V E S U M M A R Y
EXECUTIVE SUMMARY