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April 22, 2017, 9:51 a.m. EDT

Marijuana industry could be worth $50 billion annually by 2026

Weed companies are hoping the U.S. government will not disrupt a sector that is raising valuable tax revenue for states

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By Trey Williams, MarketWatch


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The cannabis industry has made strides in its effort to transform into a legitimate business sector with a growing number of participants now gearing up to celebrate the plant’s informal holiday, 4/20.

Also see: How 4/20, the stoner’s holiday, went mainstream

November saw the U.S. industry gain state allies in Maine, Massachusetts, Nevada and, importantly, California, as all four voted to legalize recreational marijuana for adult use. There are now eight U.S. states, plus the District of Columbia, where recreational marijuana is legal, there are 28 states in which medical marijuana is legal and more are exploring some form of legalization or decriminalization.

About 21% of the U.S. population now lives in a state where smoking marijuana is legal and polls say roughly 60% of Americans support marijuana legalization. Canada has gone a step further, introducing legislation to federally legalize marijuana across the country in 2018.

At the same time that Americans turn a corner on the plant that was once the center of antidrug campaigns, investors and state and local governments are realizing its potential as a source of tax revenue. In a report published ahead of the November election, analysts at Cowen and Co. estimated that the cannabis industry is worth about $6 billion in annual sales. Another $25 billion could be added to that from black market sales, and if and when those transition to the legal market, it could be worth $50 billion by 2026, the report found.

Marijuana sales rose 30% in 2016 and Colorado, one of the industry’s earliest U.S. test markets, generated $200 million of tax revenue from $1.3 billion in marijuana sales last year.

But for all of the excitement about the rapid change in the industry of the past few years, there are still many obstacles to overcome and challenges that make investing a risky endeavor.

Here are three issues to consider:

Check out: Opinion: How investors can separate the winners from the losers in the marijuana industry

Will they, won’t they

The biggest challenge for the marijuana industry is figuring out how the federal government will approach the industry and whether it will enforce federal laws, which continue to ban use of the plant. Marijuana is still labeled a Schedule I substance along with heroin and LSD, creating complications for growers and sellers in the states where it is legal. For now, the industry seems confident that public approval and expanded research will shield it from government interference, but that doesn’t make critical comments from lawmakers any less disconcerting.

“Even while momentum for legalization continues on the state level and more members of Congress are sponsoring reform legislation, the Trump administration is sending concerning and at times conflicting signals about what its policy will be,” said Tom Angell, chairman of the advocacy group Marijuana Majority, in an email.

During last year’s campaign, now-President Donald Trump was supportive of medical marijuana laws and states’ rights in legalizing and establishing marijuana policies. His Attorney General Jeff Sessions, however, has been a staunch opponent of the plant. Sessions has said “good people don’t smoke marijuana,” and other comments have made it sound as if he is itching for a return to war-on-drugs policies, but he has also recognized there is not much he can do currently to increase enforcement of marijuana laws.

Also read: Expect ‘greater enforcement’ of marijuana laws under Trump, Spicer says

For now, the federal government has its hands tied. The Hinchey-Rohrabacher Amendment prevents the Justice Department from spending federal funds to enforce prohibition laws in states where medical marijuana has been legalized.

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