Market forces driving marijuana sales

Written by By Rachel Gonzalez, CNN

As the first legal recreational marijuana shops open on October 17, traditional marijuana businesses are now required to comply with the federal law, the Controlled Substances Act.

Because cannabis is illegal under federal law, these businesses in states that permit legal recreational marijuana cannot obtain the same licensing that other businesses receive when opening a store. The North American cannabis industry is expected to be a $38 billion market by 2021, according to Arcview Market Research.

Plans and inventory come under threat as companies scramble to deal with a potentially new set of regulations.

“We’ve had nothing like this for commercial cannabis. Our focus has always been on how the plants grow, extraction techniques and ingredients for our vape pens and concentrate cartridges,” says Chris Metzler, owner of a North Carolina-based industrial hemp company, The Prairie Current Hemp.

For those aiming to compete against big retailers, which sell for hundreds of dollars more, Metzler says he’s been working to reduce the cost of manufacturing his products to be competitive.

“We’ve been working to reduce the cost of our products to be as low as possible for people,” he says. “One of the main sources of cost savings is from sourcing the hemp locally, because it’s legally grown in Florida and not far from our warehouse.”

The marijuana market is being rerouted to control structures. Credit: Network Rail Press

With the medical market leading the way, some longtime businesses in the legalization movement are hoping to see an increase in sales after legalization.

“People who have been selling to medical patients are the first market for recreational sale,” says Lori Nelson, a producer of cannabis tours for Paige Jolls, and founder of California Hemp. “Some of the most popular dispensaries are medical marijuana dispensaries. These are likely the first retail locations for recreational marijuana in communities across California.”

A walk through 16 marijuana dispensaries

The two-year legal process for medical marijuana sales in California has given recreational business owners time to prepare.

“California has had a two-year period of medical cannabis dispensaries where their business is legally operating, and therefore they know how to be compliant in the eyes of the federal government,” says Nelson.

The potency of marijuana is regulated and controlled. Credit: Frank H. Conlon/World Bank Group via Getty Images

Many dispensary owners say they will just go after legal customers, even if they’re not legal customers.

To drive them away, businesses could choose to sell to other states that have legalized recreational cannabis.

“Our next move as a dispensary is to go into a states where recreational cannabis is legal, because not doing that means we’ll lose those customers who want to come back to a legal dispensary,” says Frank Ortega, co-owner of a dispensary called Westside Flower Co., in San Diego.

However, the market will decide how many dispensaries survive in communities. Credit: Hannah Johnston/World Bank Group via Getty Images

As if that’s not complex enough, the US Department of Justice has threatened to shut down 21 pot shops across San Diego County, which could affect prices and how often residents can buy their medicine.

“Our financial partners and our banking partners have been asking us, ‘Do you have any explanation for what’s happening?'” said Ortega. “It’s going to be a long process. If we’re going to be locked out of the banking sector, it’s not going to be possible to build a small business.”

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