California’s market for marijuana is estimated to be worth over $6 billion in 4 years after voters approved a measure on the ballot allowing for the recreational use of marijuana. Marijuana will be taxed under a higher rate than tobacco, funded like risky Silicon Valley startups, and grown under immense scrutiny. However, these changes will not be immediate as California has over a year to start rolling out these new changes.

Big corporations may be hesitant to invest and participate in the marijuana industry given acreage limits, which bans federal banks from participating in anything marijuana related. These laws also prevent movement of marijuana across state borders, which can cause potential political issues. California already has an advantage due to the number of medicinal dispensaries already open; California’s local medicinal cannabis industry has spent the past 6 years doing marijuana research and obtaining permits for opening more dispensaries.

There are over 100 dispensaries in Los Angeles who do not currently have a physical permit, a gray area that will be decided on in March on whether they need to get a physical permit in order to continue operating. Marijuana will be taxed at the rate of $9.25 per ounce, a 15% excise tax, and all other local and state taxes. In addition, growing will also be taxed at the rate of $15 per square foot. The high tax rates, as well as the security measures required for selling marijuana, places more importance on the regulation of these “gray market” sellers who are avoiding the taxes and normal regulations.

As of right now, Proposition 64 limits growing to about half an acre indoors and an acre outdoors, however these limits will be lifted by 2023. As of right now this will mean that there will be many small-medium sized growers offering many different varieties of marijuana, similar to small-scale wineries and craft beer producers. Having a limit on growing does restrain these companies and growers from reaping the benefits of economies of scale, keeping marijuana prices higher than if they were allowed to consolidate and have a larger corporation growing.

When the limits are lifted in 2023, smaller growers could see an increasing amount of competition from large tobacco companies and pharmaceuticals. Large tobacco companies already have the experience and resources for growing large scale plants; even though growing marijuana is a different type of process, we can expect the tobacco industries to want to get in to this lucrative business.

The large variety of marijuana plants could turn the industry into something more similar to the craft beer industry or specialized coffee. Consumers will require a knowledgeable person at the dispensaries to guide their decisions and to inform them of all the varieties, similar to a barista at a coffee shop.

Since marijuana is still a Schedule One controlled substance, no federally regulated bank can get involved in financing any marijuana ventures or touching its profits, which is why venture capitalists are very important to this industry. Overall, we can expect this new law to open up opportunities for many small-medium sized growers while allowing consumers to enjoy the many different varieties that will soon be more widely available to them.

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