The Green Rush

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How can you predict the economic potential of a new business? See if Wall Street is willing to invest in it. And that’s just what’s happening now with the marijuana industry following partial legalization.

Where’s the money to be made? Not necessarily in direct sales of marijuana to consumers (although expect that soon in Washington and Colorado), but in the sale of ancillary products used in growing and using the pot. Manufacturers of hydroponics products, lighting and other equipment are seeing a huge uptick in sales, especially among legal home growers.

According to an article in MSN Finance, you can now buy ten different stocks in companies selling to the marijuana market. The total market is upwards of $17 billion and has been described as the next “dot com” bubble in the stock market.

What isn’t yet clear is how much of this boon is stolen from marijuana traffickers and cartels, and how much represents an explosive growth of new users as penalties are relaxed. Taking business away from criminals would be a fine thing, but adding new users to the roles? Not so good. With an estimated addiction rate of about 10%, an increase in new users spawns more addictions and the need for more treatment.

Perhaps, in our rush to legalize and monetize marijuana, we ought to consider the costs of increased treatment along with the ability to collect more taxes. Medical use isn’t as much of a concern, since that source for weed comes with the advice and consent of a doctor. But full legalization for adult recreational purposes does not. In a sense, Washington and Colorado are now social experiments in progress, and the data produced will help drive legislation in other states.

Like all new economic sectors, the big players are holding back to see which way the wind is blowing. But as soon as things settle, if marijuana legalization survives the court challenges, expect the majors to move into the market in a big way. And why not, if it’s legal? Certainly cigarette manufacturers, who already have the expertise gained through tobacco sales and ongoing relationships with farmers, will think about money to be made selling marijuana in a ready-to-use form.

For now, there’s more speculation than investor money floating around, but that can quickly change.

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