The nascent marijuana industry has made significant strides over the past several years.
Illinois is poised to become the 11th state to allow recreational cannabis sales, after lawmakers last week voted to pass legislation considered to represent the most progressive adult–use bill in the country. The passage of the Farm Bill late last year legalized hemp and declassified it as a Schedule I controlled substance at the federal level. And support for marijuana legalization recently crossed an all-time high.
But the once-illicit marijuana market still has hurdles to cross before unlocking its full potential, according to executives at some of the world’s leading cannabis companies.
Yahoo Finance asked the CEOs of Acreage Holdings (ACRGF), Canopy Growth Corporation (CGC), Cresco Labs (CRLBF) and Curaleaf (CURLF) – all public cannabis companies representing a combined market capitalization of more than $20 billion – along with analysts and investors of the space what they thought were the biggest threats facing the nascent industry.
With a decades-long history of illegality, much of the dealings in the cannabis market still take place under the table.
“What we’re all trying to do, particularly in the U.S., is convert people from the illicit market to the legal market,” said Joe Lusardi, CEO of Curaleaf. “I think that the faster the states move, and create regulated tax frameworks, the better our companies will do. And the slower they move, the black market will continue to proliferate.”
In the U.S. — the global demand leader for cannabis — total legal demand is expected reach $25.7 billion by 2025, up from $10.3 billion in 2018, according to a recent report from analytics firm New Frontier Data.
But these estimates are dwarfed when compared to total demand including the illicit markets. A separate study from New Frontier Data in April estimates that the total addressable cannabis market, inclusive of both the regulated and black markets, reached $344 billion in 2018, with North America alone comprising $85.6 billion of that sum.
“It’s a combination of legislature and administrations doing their job, but ultimately, the black market frankly is our biggest competitor,” Lusardi said. “We don’t view each other as competitors, frankly. We view this as an industry that we can all build and prosper from.”
Regulation and public policy
As of 2019, 10 states and the District of Columbia legalized and rolled out recreational use of cannabis for adults over 21, and more than 30 states legalized medical use. Overseas, Canada in October became the second country after Uruguay to legalize adult use. More than 30 countries have medically legal marijuana.
A patchwork of cannabis laws across the country – and rest of the world – have created challenges for multi-state and multi-national operators.
“Public policy – do we have a testing standard? And I’m talking globally. Do we have it for hemp even nationally?” said Bruce Linton, CEO of Canopy Growth Corporation. “The policy is not actually working for the patients. It’s not working for businesses. And so what we have as a risk is they move too slowly to make a proper platform, and you can’t execute in that kind of weak environment.”
Linton called out the fogginess surrounding cannabis policy in the U.K., where medical marijuana was made permissible last November but has since frustrated many patients due to an overly bureaucratic system. Canopy Growth Corporation entered the United Kingdom earlier this year by way of a joint venture with research company Beckley Canopy Therapeutics.
“It’s got to be regulation,” Jason Wilson, President of Budding Equity Asset Management, said when asked about the biggest threat to the industry. “At the end of the day, the biggest challenge is going to be getting not just regulation in the U.S., but globally.”
“That’s one of the larger hurdles, but there’s no question for the demand. There’s billions of people that are in countries that are already legal, at least medicinally,” Wilson added. “And it’s just how quickly it happens will depend on how quickly those regulations move along.”
Consistency and execution
According to Kevin Murphy, CEO of Acreage Holdings, and Charlie Bachtell, CEO of Cresco Labs, the biggest threats to the cannabis industry are “execution,” and “consistency” – on the part of both public policymakers and companies in the sector.
“There’s a common thread between, I think, the three of our answers,” Bachtell said of his, Murphy’s and Linton’s responses. “It’s incumbent upon the operators to make sure that the products, that we’re meeting the expectations of what it means to be a national industry, similar to consumer packaged goods, where you need quality, consistency and availability.”
“If we fail to execute, if there’s not consistency, you’ll have public policy issues,” he said.
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