Legal Marijuana Sales Could Reach $6.7 Billion in 2016

It’s possible that 2016 is a historic year for recreational and medical marijuana legislation as legal marijuana sales could reach $6.7 billion in 2016, according to a new report by ArcView Market Research. This would indicate an astonishing 17 percent jump in sales from 2015, during which legal cannabis sales accounted for $5.4 billion.

“I think that we are going to see in 2016 this next wave of investors, the next wave of business operators, and people who’ve sort of been watching or dipping their toe in, really starting to swing for the fences and take it really seriously,” says Troy Dayton, CEO of ArcView.

The sales numbers are impressive, especially considering legal adult recreational sales are still young. So far, four states and Washington DC have adopted legislation for adults over 21 years of age. Colorado was the first to legalize adult use in late 2012, and the state of Washington just completed its first year of legal recreational sales after launching in July 2014. Legal adult use sales began October 2015 in Oregon and early 2015 in Alaska.

“A lot of people in the business and finance world, in particular, have kind of taken a ‘wait and see’ approach to the cannabis industry,” says Dayton.

Dayton predicts that will change in 2016, and the growing revenue will attract more and larger investors, leading to even greater sales revenue.

According to The State of Legal Marijuana Markets report, the fourth such edition published by ArcView, the market is expected to compound annually by 30 percent over the next few years. By 2020, the legal cannabis market could build to a mind-blowing $21.8 billion.

ArcView partnered with New Frontier, a cannabis industry data analytics firm, in November 2015. The partnership has allowed this report to be more comprehensive than previous editions. No longer is the focus strictly on medical and recreational dispensary sales. It can now track a wider variety of legal marijuana sales and take into account the cannabis sold through delivery services and medical marijuana caregivers.

Driving Up Revenue: Adult Use of Cannabis

The expected increase in revenue coincides with a rise in adult marijuana use, the report notes. A combination of generational shifts in views and state legislative changes are seemingly responsible for the marked bump in adult use marijuana sales, which will account for 53 percent of the overall cannabis market by 2020. In other words, that’s a 1,150 percent increase in recreational sales over a four year span.

The growing interest in marijuana edibles appears to be helping boost sales numbers.

“[Edibles]… come at higher price points than the flower does, which means the businesses are able to capture higher sales per customer through the sales of these new products,” says John Kagia, New Frontier’s Director of Analytics and author of the report.

While legal, recreational sales are limited to four states and Washington DC, voters in California, Nevada, Maine, and Arizona are likely to find adult use legalization initiatives on their ballot in the general election in November 2016. If the shifting attitudes toward accepting marijuana use are any indication, numerous states will likely adopt recreational legalization in the coming year.

“According to Gallup, 58% of Americans now support legalization of cannabis for adult use, up from 36% in 2005; a separate poll by Harris found 81% of Americans support legalization for medical use,” reads the report. “While support for cannabis law reform has risen across all age groups, it is highest among adults age 18-34, 75% of whom now support legalization of adult use.”

If notable state legislative changes throughout the US do occur, the market is expected to maintain its staggering upswing. It could also mean further reductions in trafficking profits for major Mexican drug cartels.

Sources of Revenue: Taxes & License Fees

The boost in marijuana sales means greater revenue for the states that have adopted adult use legislation. States are able to bring in hundreds of millions annually through taxes and license fees.

Marijuana retail licensees and dispensaries are required to pay license application fees, license annual and renewal fees, and excise taxes on all taxable sales of marijuana, marijuana concentrates, useable marijuana, and marijuana-infused products. Consumers must pay for licenses if they want to cultivate their own cannabis and pay sales tax on all adult use purchases from dispensaries or licensed retailers. All of this equates to big revenue for the state:

“Legal sales have been a boon for state coffers in markets like Colorado, where the state was expected to generate $135 million in cannabis taxes and licenses fees in 2015, a 77% increase over the $76 million the state raised in 2014. In Washington, the first year of legal sales generated $70 million in tax revenue from sales of $257 million, a significant windfall even after product shortages and pricing instability plagued the program during its early months.”

Colorado uses revenue from marijuana sales to fund improvements to the state’s public schools. Last November, $40 million went to school construction and $12 million to youth and substance-abuse programs.

“We’re taking dollars that were previously going to drug cartels in Mexico and using them to provide opportunity and education to the next generation,” says Sal Pace, Colorado’s Pueblo County Commissioner.

With the exciting findings in the ArcView report and after the significant cannabis law changes that occurred in 2015, there’s no doubt that 2016 will be a year filled with even more momentous legislative developments. You can keep up with everything happening by visiting our news and political pages on the MJNA blog.

Image Credit: Wikimedia Commons