Cannabis Industry Grows Rapidly, What This Means for Licensing

Increased legalization of recreational cannabis is projected to fuel skyrocketing growth rates of the US cannabis industry.

According to Business Insider, by 2020, the industry is predicted to pump $44 billion annually into the economy, assuming current business and legislation trends. Other than from the actual product itself, revenues are also generated from licensing fees, taxes, cannabis tourism, employee spending, job creation and growth in real estate prices, and related business—including medical containers and plant harvesting equipment—are also projected to grow significantly.

New Frontier Data, a cannabis market research and analytics firm, revealed in its 2017 annual report that the country’s cannabis industry is estimated to reach $24 billion by 2025 and that the industry could create more than 255,000 jobs within the next three years. While medical cannabis sales are expected to maintain their dominance in the market, recreational sales are expected to grow their market share significantly following recent legalization in several states.

Meanwhile, investment firm Cowen & Co. predicted that the cannabis industry could reach $50 billion in worth by 2026. ArcView, another cannabis research company, projected a 26 percent annual growth rate in North America for the next three years.

As a result of these soaring growth rates, investing in cannabis stocks has become increasingly popular. Within the past couple of years, for example, investment returns from cannabis has come in second, only after investments in cryptocurrency, according to multimedia financial-services company, The Motley Fool.

With the industry growing rapidly, the concept of licensing cannabis rights is on the rise.

“When my parents paid for me to go to accounting school at USC, can you imagine if they had known then that I might be using my education to count earnings for the cannabis industry,” Matt Hurewitz, President of Hurewitz And Company, said. "It would have blown their minds. I think it’s kind of a neat idea.”

Hurewitz has conducted audits for land use for the state of California, where the state leases out rights to the land and natural resources to oil and gas companies in exchange for royalties.

“The same things might be happening in the cannabis industry,” Hurewitz said. “Where growers are going to lease rights to the land, and they’re going to have to pay a royalty, and we’re going to have to audit on behalf of the land owner. At the end of the day, it would be just another business, and it would be auditing the revenue that the license generated and comparing it to what amounts were reported.”

Legally, however, there are some concerns regarding the discrepancies between federal and state laws. According to The Motley Fool, cannabis investors should be cautious because cannabis is illegal on a federal level and the federal involvement in states that have legalized marijuana to some capacity may cause problems for investors.

“There are certainly top tier firms that are doing work in the cannabis industry,” Hurewitz said. “I don’t know enough about the legalities. I’m sure that before we get hired to do an audit, we will have to check on the legalities, but hopefully before that happens, years will have passed so that legal issue can work itself out.”