Report: Medical Marijuana Market Growing Quickly

March 24th, 2011 – CHICAGO — It has been called a lot of things over the years: grass, Mary Jane, wacky weed. Now, researchers are suggesting a new moniker for marijuana: alternative investment.

A report out this week on the U.S. medical marijuana market estimates the unconventional business already generates $1.7 billion in economic activity a year. But that market could grow fivefold in short order, researchers say, as the list of states that legalize pot for treating a variety of illnesses grows and as more patients try it — and switch.

The study, conducted by See Change Strategy for the American Cannabis Research Institute and Deal Flow Media, a financial research firm specializing in unusual assets, says that of the nearly 25 million Americans who are potentially eligible to use medical marijuana based on their diagnoses, fewer than 800,000 currently do.

That makes the nascent market a potentially attractive one for investors looking for an alternative to the more traditional investment alternatives like art, antiques, wine or coins, one with an upside potential that makes China’s current growth rate look anemic.

The opportunities, the authors say, aren’t confined to cultivation and distribution — the riskier parts of the business.

Many perfectly legal products and services, from software and security to hydroponic infrastructure to marketing, communications and consulting, will offer money-making opportunities in the coming years.

But the authors, who surveyed 300 medical marijuana industry insiders, point out that the fast-growing market faces a daunting number of hurdles. These include inadequate access to legal capital, unfavorable tax status, a lack of experienced executives, downward pricing pressure and a complex — and contradictory web — of state and federal rules. All this makes investing in marijuana a risky proposition.

There’s also the very real potential for conflict with the criminal gangs that control the much larger $18 billion a year illegal U.S. marijuana market. These conflicts with criminal gangs tend to get settled outside the judicial system.

Still, the study says the U.S. medical pot market could be nearly half the size of the illegal market — about $8.9 billion — in just five years.

“That’s assuming there are no obstacles,” said Ted Rose, the editor of the study. “I’m not weighing in on whether that’s likely or not. But that $1.7 billion is the real money that’s being made this year.”

To put that in perspective, Lipitor, Pfizer Inc’s cholesterol-reducing drug and the world’s best-selling pharmaceutical, had U.S. sales of $5.33 billion in 2010.

More than a dozen U.S. states and the District of Columbia have legalized the use of marijuana to help patients with chronic illnesses, including cancer, AIDS and multiple sclerosis.

The survey found that 34 percent of the medical marijuana businesses said regulatory compliance — not customer demand or securing supply — was the top challenge they faced. Another 24 percent said financing was the industry’s most pressing need.

But because the possession and distribution of marijuana remain illegal under federal law, the report’s authors point out that the market is rife with risk, including “the ever-present risk of being shut down or experiencing a property seizure without notice.” Source.

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