Dagga an ‘alternative investment’

2011-03-25 07:11

CHICAGO – It has been called a lot of things over the years: grass, pot, Mary Jane, wacky weed. Now, researchers are suggesting a new moniker for dagga: alternative investment.

A report out this week on the US medical marijuana market estimates the unconventional business already generates $1.7 billion (about R12 billion) in economic activity a year.

But the market could grow fivefold in short order, researchers say, as more states legalise pot for treating a variety of illnesses and more patients try it.

The study, conducted by See Change Strategy for the American Cannabis Research Institute and Deal Flow Media, a financial research firm specialising in unusual assets, says that of the nearly 25 million Americans who are potentially eligible to use medical marijuana based on their diagnoses, fewer than 800 000 currently do.

That makes the nascent market a potentially attractive one for investors looking for alternatives to the more traditional investment alternatives like art, antiques, wine or coins, with a strong upside potential.

The opportunities, the authors say, aren’t confined to cultivation and distribution – the riskier parts of the business.

Many perfectly legal products and services, from software and security to hydroponic infrastructure to marketing, communications and consulting, will offer money-making opportunities in the coming years.

But the authors, who surveyed 300 medical marijuana industry insiders, point out that the fast-growing market faces a daunting number of hurdles.

These include inadequate access to legal capital, unfavourable tax status, a lack of experienced executives, downward pricing pressure and a complex and contradictory web of state and federal rules.

All this makes investing in dagga a risky proposition.

There’s also the very real potential for conflict with the criminal gangs that control the much larger $18 billion a year illegal US marijuana market. These conflicts with criminal gangs tend to get settled outside the judicial system.

Still, the study says the US medical pot market could be nearly half the size of the illegal market – about $8.9 billion – in just five years.

“That’s assuming there are no obstacles,” said Ted Rose, the editor of the study. “I’m not weighing in on whether that’s likely or not. But that $1.7 billion is the real money that’s being made this year.”

To put that in perspective, Lipitor, Pfizer Inc’s cholesterol-reducing drug and the world’s best-selling pharmaceutical, had US sales of $5.33 billion last year.

More than a dozen US states and the District of Columbia have legalised dagga for patients with chronic illnesses including cancer, Aids and multiple sclerosis.

The survey found 34% of the medical marijuana businesses said regulatory compliance – not customer demand or securing supply – was the top challenge they faced. Another 24% said financing was the industry’s most pressing need.

But because the possession and distribution of marijuana remain illegal under federal law, the report’s authors point out that the market is rife with risk, including “the ever-present risk of being shut down or experiencing a property seizure without notice.”

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