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Why pot's election wins won't give the industry a boost

Posting in Education

Cannabis leaf

On Tuesday, voters in Colorado and Washington approved marijuana for recreational use.

You read that right -- while 18 states have approved medical marijuana, these two states go further than that policy, in the hope that sales of marijuana will help raise much needed tax revenue. In Colorado, for instance, the first $40 million of tax money raised from the sale of marijuana will fund education.

So, should we expect to see a boom in the pot industry? No, according to Quartz, for two reasons.

First, pot is still illegal on the federal level. "The federal government agreed in 2009 not to prosecute medical-marijuana growers and dispensaries in states where it was legal, but prosecutors began to act after the stuff began to be smuggled across state lines," says Quartz.

The illegality creates a second problem for growers: sellers of marijuana cannot safely store their money anywhere. Because the drug is illegal on the federal level, banks can't take profits from the sale of marijuana. That means weed growers and retailers will have to conduct all their business in cash. And that, of course, would make it pretty hard for them to create large pot companies.

Second, the recreational industry could set back the medical marijuana industry, according to Robert Kane, the head of investor relations for one medical research company, Cannabis Science, which looks into medical applications for organic cannabinoids, which are derivatives of the cannabis plant. Potential uses for cannabinoids include dealing with chronic pain, treating post-traumatic stress disorder, multiple sclerosis and more.

But most of the companies making headway on such research are outside the U.S. American companies wanting to do such research still can't get approval from the federal government to conduct a clinical trial.

So why would recreational use hurt the medical marijuana industry? Partially, it would create an image problem: “The $100 million you need to get through the Federal Drug Administration [drug tests] is never going to come from the government if you’re out there selling hemp t-shirts,” Kane tells Quartz.

The second reason is that medical marijuana growers already struggle to make a profit under a number of regulations, and now growers in Colorado and Washington will have even more competition.

So, while the fact that two states have newly legalized recreational marijuana use seems like an expansion of the industry, it's probably not going to do much for pot growers.

Related on SmartPlanet:

via: Quartz

photo: Rotational/Wikimedia

— By on November 8, 2012, 9:27 AM PST

Laura Shin

Features Editor

Laura Shin has been published in The New York Times, The Wall Street Journal and The Los Angeles Times, and is currently a contributor at Forbes. Previously, she worked at Newsweek, the New York Times, Wall Street Journal and LearnVest. She holds degrees from Stanford University and Columbia University's Graduate School of Journalism. Follow her on Twitter. Disclosure