The $100 Billion Cannabis Industry

Money and Cannabis

The smell hits me, as it does every time, with a wallop. I’ve visited dozens of grow rooms in multiple states, but I never get tired of the terpene-laden breezes which waft over my nose when entering a grow for the first time. I lean over to take in the piney scent from the tiny buds – this time it’s OG Kush, only two weeks away from harvest. From where I stand, it seems like heaven – the 15 x 15′ room is practically carpeted with screen of green. But the grower – let’s call him Bill – is wearing a worried look. His plants are fine – in fact, this is one of the best grows he’s had in years. But while everything is going great inside his grow room, it’s what’s on the outside that bothers him most. He wants to know what will happen to the price of weed.

First, the bad news: the days of the $4,000 pound are gone and they’re never coming back. In a free market economy, the proliferation of competitive supply will inevitably drive wholesale prices down toward the lowest prices which can sustain efficient production – simply put, as long as there is a grower who can grow cheaply, there will be a market for cheap marijuana. For large swaths of the consumer market, weed is just weed – according to government surveys, between 70-80 percent of marijuana consumers are so-called “light users” who smoke occasionally and don’t particularly care about the strain or even the THC content. This portion of the market cares about two factors more than any others: they want a legal supply which won’t get them arrested, and they want to smoke without breaking the bank. This large population of occasional tokers will inevitably place downward pressure on the price of cannabis after it’s legalized. How much pressure? Beau Kilmer and Rosalie Pacula, the PhDs who head the drug policy arm of the nonpartisan RAND think tank, predict that joints of the lowest-quality weed will eventually cost about the same as ketchup packets.

Now, the good news: there will still be plenty of money to be made in the boutique and value-added segments of the cannabis market. Boutique growers provide for the connoisseurs – the so-called “heavy users” who enjoy cannabis more than the average consumer and have discerning tastes which favor the highest-quality bud. And although they may be a minority of the total number of smokers, the silver lining is that connoisseurs smoke much, much more weed than the average member of the population – so that any grower who can produce top-of-the-line, organic cannabis from heirloom strains will still have a healthy market which demands their produce. And, as any seasoned grower will tell you, growing the very best cannabis is something that only a few growers can do well – so the downward price pressure which ravages the rest of the market will not have as strong an effect on their bottom line.

Potentially, even greater opportunities await in the market for value-added cannabis – products which start out as marijuana but then have something added or done to them to increase their value. Examples include marijuana edibles and extracts – two of the fastest-growing segments of the marijuana market. Any entrepreneur who has a special talent for making delicious medicated chocolates or for producing top-shelf BHO will find that there’s plenty of money to be made in these areas, even after legalization.

Often overlooked but probably just as big – if not bigger – is the market potential for marijuana’s sober cousin, industrial hemp. The recreational/medical market could very well account for $100 billion by itself (that, at least, is the conclusion of a 2006 study by Jon Gettman, PhD.); but when one also accounts for the industrial hemp industry which will spring up in legalization’s wake, that figure may very well be low.

Cannabis was already a billion-dollar crop in 1938, if the eponymous “Popular Mechanics” article is to be believed. Adjusted for inflation, that figure comes to about $17 billion today – not a bad chunk of change. Yet there are good reasons to think that Popular Mechanics significantly underestimated the value of the famously versatile plant: the 1938 article made no attempt to tally three of its top likely uses – medical, recreational and ethanol – toward its total. And even with all the progress that has been gained toward making marijuana medicine, science has still only scratched the surface of all of the treatments that could be developed from marijuana in the future.

And while the list of products which can be made from cannabis is impressive enough by itself, even that only tells part of the story. Purveyors of cannabis-related services – ranging from in-home delivery drivers who service invalid patients to cultivation consultants who help farmers maximize their yields to attorneys who specialize in helping their clients comply with rapidly shifting laws – have nearly unprecedented opportunities ahead of them. Likewise for manufacturers of vape pens, rolling papers, bongs and pipes – the list is nearly endless.

Finally, some of the greatest value which can be derived from the cannabis industry may come not from what people choose to have or do, but rather from what they choose not to do. While the excess consumption of alcohol causes the premature death of 88,000 Americans every year, binge drinking and alcoholism also carries a hefty price tag: a staggering $223.5 billion, according to the Centers for Disease Control. That is a massive public cost for which all of us have to pick up the tab; if the emergence of a legal cannabis industry cuts binge drinking in half, that alone could save more than $100 billion. Ditto for cigarettes: even with the massive gains made against tobacco smoking in recent decades, the use of this highly addictive substance still claims the lives of a jaw-dropping 480,000 Americans every year – more than all deaths from alcohol, AIDS, auto accidents, illegal drugs, murders and suicides combined. And the cost of treating all those smokers on their way to the grave is almost as expensive for public coffers as alcohol: a massive $170 billion per year. And when one considers the greatly reduced risk of cancer, diabetes, obesity and opiate addiction among cannabis users on top of all of these other public health benefits, the savings our country could derive from a thriving cannabis industry could be measured not in the hundreds of billions, but rather in the trillions – with a ‘T.’

Bill shuts the door to his grow room behind us and we sit down in the kitchen to roll a joint. We talk about the future of the cannabis industry, imagining how big it could be. He hands me a joint the width and length of my index finger and I take a long, deep toke – savoring the bursts of pine and citrus, the clean, smooth burn. “Don’t worry,” I tell him, passing the joint back. “You’ll do just fine.”

How It Could Add Up

Accurate numbers on the size of the U.S. cannabis industry are difficult to come by, but here are some estimates of how the market could add up to $100 billion per year after legalization takes effect:

Medical (est. $30 billion): The U.S. healthcare market is already worth over a trillion dollars a year; if medical marijuana captured 10% of that amount, that alone would be worth $100 billion. But first, federal law has to change.

Pain: Americans consume $40 billion worth of drugs to treat chronic pain every year, and that figure is expected to rise to $60 billion within a decade. Cannabis is already recognized as a valuable adjunct therapy for the treatment of chronic pain; as it becomes more accepted, it could become one of the most popular pain medications in the country.

Cancer: The U.S. market for cancer drugs is also worth about $40 billion per year, and with the average cost of new cancer treatments rising to a jaw-dropping $20,000 per month, the value of the market is only expected to rise. Many patients have already greatly improved their quality of life by adding cannabis to their cancer therapies, and as more states reform their medical laws the popularity of cannabis to treat cancer’s symptoms – and possibly the cancer itself – will rise too.

Arthritis: Americans already spend about $60 billion on treatments for rheumatoid arthritis, but many patients report that cannabis is more effective. Medical marijuana could easily capture a large percentage of this lucrative market.

Home construction (est. $10 billion): The market for residential construction represents a large chunk of the total U.S. economy, with Americans expected to spend over $400 billion on homes in 2016. If half of them chose to save precious forests by building their homes out of renewable hemp materials instead, that alone would create a $100 billion industry.

Hemp ethanol (est. $30 billion): Even with gas prices at the lowest rates they’ve been in years, American households still spend about $2,000 annually to fuel their vehicles; that makes for an industry worth about $240 billion per year. Modern engines can run on blends of between 10-85% ethanol – and hemp just happens to be one of the best sources of ethanol available.

Recreational use (est. $40 billion): Currently, Americans spend almost $200 billion on alcohol; and while the market for cigarettes has shrunk in past decades, it is still valued at about $35 billion. If a tenth of America’s alcohol consumption and a third of smokers switched to this safer alternative, that would shift over $40 billion in revenues to the cannabis industry.

Originally published in issue 18 of Cannabis Now. LEARN MORE

Where do you predict we’ll see the most growth in the cannabis industry?

Jeremy Daw is a contributor of Cannabis Now Magazine and the author of Weed the People: From Founding Fiber to Forbidden Fruit. After studying English Literature at the University of Texas, philosophy at NYU, and law at Harvard, he embarked on a career of writing about his favorite plant. As an expert in the law, history, and politics surrounding cannabis sativa L., Jeremy provides exceptional insight and analysis for cannabisnow.com.
  • AkivaBenShlomo

    The facts brought out in this article are conclusive even if they aren’t exactly correct. If they’re 50% correct we win big time. There is no argument against that isn’t a matter of greedy death mongers and cruel haters on a power trip. Good thorough article. Thanks

  • The Sinned Angel

    It occurs to me..
    .. Those GORGEOUS pictures of incredibly delicious buds on your web site are kind of like those GORGEOUSLY beautiful women in Sports Illustrated.. nice fantasies, but not likely I’ll ever get to experience either one.

    TheSinnedAngel

  • Etta Su

    Jeremy, really? Your “article” ireads more like a press release! You have no facts to back up the basis for claiming the trillions in “savings” from cannabis. I fully support legalization. But it is clear you are not engaged in fact-based journalism. You don’t even point to the risks of smoking cannabis and the impacts on the lungs and respiratory system. See the American Lung Association’s website . I don’t like breathing other people’s second hand smoke, whether tobacco or cannabis. Have you ever read Aldington et al’s 2008 study published in the European Respiratory Journal that concluded “long term cannabis use increases the risk of lung cancer in young adults.” I will rely on more responsible cannabis news sources in the future. You hurt the cannabis cause by glossing over the risks.

  • elelo

    Add the pain medication to that 70 million sum. 110 million.

  • elelo

    It is that 70 million loss in medical plus cancer that big pharmaceutical companies hate. It is the reason they invest so much in keeping cannabis illegal.