The legal cannabis industry’s existing value, scope of growth and profit potential have proven very enticing to investors with an appetite for calculated risks and new opportunities. But while there is undeniable momentum behind the emerging legal weed market, it is uncharted territory, which has institutional capital still standing at the sidelines or — at most — dipping the tip of a toe in the water.
One of the main factors inspiring this fiscal trepidation, at least in the United States, is the persistent looming shadow of federal prohibition. Most potential investors with a basic working understanding of the current policy picture know that enforcement crackdowns and law enforcement raids are no longer the main liability presented by the Schedule I status of cannabis — it’s all about the money.
Because when it comes to almost everything related to the basic cashflow required to make business possible, a cannabis enterprise faces many hurdles and locked doors that other industries never deal with. Two key examples of this systemic barrier to full realization of the industry’s economic potential are the lack of traditional banking services for most cannabis businesses — which are forced to resort to “creative accounting” or simply do their business entirely in cash, for everything from securing inventory and funding payroll to paying taxes — and the crushing impact of IRS code 280E, which makes it illegal for cannabis businesses to write off basic business expenses, resulting in effective tax rates of 70 percent or more.
The truth is, despite some historic milestones and impressive projections, the investment picture around the emerging legal cannabis industry is still developing: The North American Marijuana Index has taken some major hits (not the fun kind) in recent weeks.
From The Motley Fool:
Over the trailing six-month period, the North American Marijuana Index has risen by 127%, which isn’t too shabby. However, since hitting an all-time closing high of 363.31 on Jan. 23, the highly followed measure of pot stock health has plummeted 29% in a matter of eight weeks.
But that downturn is starting to show signs of reversing since the news broke that Colorado Senator Cory Gardner (R) had reached a verbal agreement with president Trump that roughly amounts to ending his blockade of the president’s DOJ nominees in exchange for support of a Congressional initiative to carve out federal protections for state-legal cannabis enterprises.
The North American Marijuana Index rose immediately following the announcement of the Gardner/Trump agreement, as did the United States Index, which saw a nearly four-point jump. Even the Canadian market seems to have received a boost, with the Canadian Index shooting up roughly 22 points at the same time.
The maturation and standardization of the legal cannabis market is in full swing, but there’s plenty of work left to be done when it comes to creating an economic ecosystem hospitable to investment and business growth. The possibility of a clear, supportive policy coming out of Washington D.C. has many within the industry excited, so it’s unsurprising to see a boost of interest in those still mulling over the possibility of entering this new market.
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