The legal sale of cannabis continues to grow steadily regardless of illegal sales. The latest report about the legal cannabis market by the Arcview Group highlights the positives as well as the challenges ahead. The group entered into a partnership with BDSA which is an analytics firm for forecasting legal cannabis spending.
The report predicts that the legal cannabis market will touch $20.4 billion in the current year. However, despite the increase in sales, the major purchases of cannabis still happen through illegal markets.
About $214 billion was spent in purchasing cannabis from illegal channels in the year 2019 whereas just $14.8 billion was contributed to the legal market share.
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The sole reason why marijuana was legalized was to cut down illicit sales. The activists have asserted before the legalization of cannabis that the illicit market would come crumbling down after making marijuana legal. However, this hasn’t been the case.
The report suggests that high taxation contributes to higher prices of cannabis products and this is the major hurdle for people in shopping from legal stores.
The report states that “Local regulators could lower tax rates and relax regulations in pursuit of a quicker reduction in illicit-market sales, driving more legal spending and ultimately more tax revenue.”
The recommendation of lowering tax on marijuana products can be pretty hard to implement. Oklahoma has chosen taxing the products at 4% whereas Washington collects massive taxes with a 39% tax rate.
California earlier strived to keep the cannabis taxes in check. However, the state hasn’t found much success with it. The increase in price at legal stores due to exorbitant taxes has pushed people to rely on cheaper illicit options.
Impact of COVID-19 on Cannabis Sales
The COVID-19 pandemic has impacted the cannabis industry severely. The lingering effects will be witnessed throughout the year. Cannabis products were deemed to be essential by many states.
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However, not all companies managed to make huge chunks of profit from the declaration. Recession that has slowly set in could have a short term impact on some cannabis companies.
State tax shortfalls could compel more legislatures to turn to legalization sooner owing to recession. The fourth-quarter consumer insight study done by BDSA identified that 29 percent of Americans already consume cannabis.
States that have legalized cannabis products have also witnessed an increase in legal cannabis sales. Passing new legislation for cutting down high taxes can drive more revenue by attracting more consumers to the industry.
New Cannabis Legalization to take place
The new legislation and COVID are making it hard to push the legalization of cannabis in states that haven’t yet made any move. This is a major year with elections on cards.
However, just three states have mentioned cannabis legalization as their agenda. Mississippi, South Dakota, and New Jersey have plans to legalize cannabis. Governor Cuomo is rooting for legalization due to limited federal aid. He has strategies to generate crucial income for the state.
New Jersey had passed the legislation in 2019 but couldn’t get the three-fifths majority that was needed from the legislators. The state is now letting the voters decide whether they want cannabis to be approved or not.
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If everything goes well, then the sales can commence from 2022 or sooner. As per the report, New Jersey sales could touch $1.3 billion by 2025 in spending from $107 million in 2019, if cannabis legalization takes off.
The major concern is federal illegality that still impacts the industry. All legislation that seemed promising have been stalled by the industry. Many believed that President Trump would support cannabis legalization as his popularity is steeply declining.
However, he hasn’t hinted at it. A moderate approach has been taken by the Democratic nominee, Joe Biden. Racial injustice and COVID-19 seem to be the hot issues currently thereby pushing marijuana legalization to the back burner.
