marijuana-marketSince Washington and Colorado legalized marijuana through voter initiatives last year, numerous entrepreneurs are clamoring for a taste of the millions of dollars the industry may hold. However, with federal authorities starting to loosen restrictions on bank financing for marijuana suppliers, a flood of new business owners looking to start their own local pot shop and online suppliers of cannabis seeds, there are questions whether marijuana may soon see a bubble similar to the dot com bubble of the late ’90s.

Exceeding the Expectations

Since Colorado started marijuana sales a few months ago, profits have exceeded most analysts expectations. With 1 million dollars in sales on the first day, Colorado shows that in terms of boosting tax dollars and economic activity, marijuana may be just the cure the doctor ordered. Since sales started, millions of dollars in transactions have occured, without the impending anarchy many conservative commentators warned of.

Rank Crop Unit Planted Area Harvested Area Yield Per Acre Production 1997 Street Price Per Unit Value of Production
      (000) Acres (000) Acres   (000) Units Dollars (000) Dollars
1 Marijuana Lb N/A N/A N/A 1,3 $2,976 $3,870,000
2 Grapes, All Ton N/A 668 9.28 6,196 $424,000 $2,627,104
3 Almonds Lb N/A 420 1,786.00 750 $1.550 $1,162,500
4 Hay, All Ton N/A 1,500.00 5.74 8,616 $123.000 $1,059,768
5 Cotton, Upland Lb 880 875 1,207.00 1,056,000 $0.737 $778,272
6 Oranges, All Box N/A 199 342 68 $9.400 $639,200
7 Walnuts Ton N/A 170 1.58 269 $1,310.000 $352,390
8 Rice, All Cwt 512 510 8,300.00 42,341 $8.200 $347,196
9 Apples, All Commercial Lb N/A 38.5 25,300.00 975 $0.332 $323,700
10 Lemons Box N/A 46.5 430 20 $13.290 $265,800

Above: California Top 10 Cash Crops (NORML.org)

Many states still operate with semi-legal weed “black markets” in the form of medical marijuana clinics. These clinics are criticism for being glorified drug fronts, and are often the target of federal busts. In 2011 Montana’s state legislature attempted to de-legalize medical marijuana clinics. These clinics are often cash based, with few bankers willing to handle their deposits. Some store owners worry about robbed, and accused of money laundering, due to the large amount of cash they must keep on hand.

Universal Success?

Commercial success in recreational marijuana isn’t universal. While Colorado authorities have largely ran with the voter approved push for a marijuana market, Washington State is a different story. In fact, the conservative regime currently running the state legislature recently received recommendations from their state medical marijuana work group to start a database of medical marijuana patients. The legality of this maneuver is questionable, as HIPAA laws are pretty clear cut in preventing the release of medical records without a warrant. Taken together, these actions suggest the less robust legal marketplace in Washington is due more to morality issues among politicians than it is lack of demand.

All of this is to say despite the optimism from entrepreneurs about marijuana, too many players with too many restrictive regulatory barriers may set the industry up for a bubble. While optimism abounds from the recent business boom in Colorado, as well as the success of medical marijuana clinics elsewhere, small business owners may need to think twice about the long-term potential of the US’s booming marijuana market.