- Marijuana Topics
- July 1, 2020
2021 will be a huge year for the legalized marijuana business in the United States.
As a Canadian, I have unique firsthand experience with national cannabis legalization…
And I believe that we are heading for a boom.
Let me show you why 2021 is going to be big for the weed industry – and why it’ll pay to be selective…
Across the Country, We’ll Make Up Big Deficits
When we finally come out of COVID-19, every state in the U.S. is going to be desperate for cash. Tax revenues are down in a big way because of a sputtering economy.
State government spending, on the other hand, is way up as we fight our way through this plague.
Decreased revenue and increased expenses have punched giant holes through annual budgets, and state balance sheets are taking an even bigger beating.
We are talking about massive financial shortfalls across the country.
In 2021, politicians will need to scour the sofa cushions for every penny they can find. All of a sudden, the idea of collecting state sales tax revenue on legalized marijuana will become very appealing.
In 2020, COVID-19 has put a damper on marijuana legalization. Coming into this year, analysts expected that up to 16 candidates would put cannabis legalization on their election ballots.
That list has quickly shrunk as elected officials shifted their focus to battling the pandemic.
While this year the politicians are focused on COVID-19, next year they will be scrambling to pay for it. The states that deferred legalization efforts are going to move forward with it aggressively in 2021.
Any other states that were close to moving on legalization will do the same as they seek to shore up their finances.
According to BDS Analytics, which tracks the cannabis industry, sales in states that have already legalized both recreational and medical use hit $15 billion in 2019. That number is expected to double to $30 billion by 2024.
Obviously, states that aren’t collecting tax on cannabis are missing out on a lot of revenue.
They are also missing out on a lot of jobs. There are 244,000 full-time employees in the industry where states have legalized.
Jobs and tax revenue create a powerful combination to make weed legal…
A Legalization Boom Does Not Guarantee a Boom in Pot Stocks
I live in the province of Manitoba. Recreational marijuana use has been legal at the federal level up here since October 17, 2018.
In mid-March, Manitoba went into lockdown and only essential businesses were allowed to remain open.
To get out of the house, I took the kids on rides through the city to see how empty the streets were. It was surreal.
As we drove around, we would alert each other when we saw a business that still had a flashing “open” sign in the window.
Every couple of blocks, the kids would spot an open sign and shout out “There’s one!” You would be shocked by how many times what they were looking at was a marijuana dispensary.
We live in a tiny city with just 65,000 residents.
But our little city already has more weed shops than it has McDonald’s, Burger King and Wendy’s locations combined.
Trust me when I tell you that Manitobans eat a lot more burgers than use cannabis… But we are overrun with these shops.
I don’t have a problem with that, but those businesses are going to have a problem because they can’t possibly be making any money.
There is far too much competition in this industry for these companies to generate decent profit margins.
In places where marijuana is legal in the United States, the same thing has happened. Lots of companies have rushed in and created a highly competitive marketplace.
Heavy competition does not create big profits…
When the legalization boom comes in 2021, investors need to look at this industry with their eyes wide open.
Yes, I believe that there will be a few really, really good marijuana stocks in the years ahead.
But there are going to be a whole lot more that crash and burn.
About Jody Chudley
Jody Chudley is a Contributing Analyst to Wealthy Retirement. He is a qualified accountant with two decades of experience in the international banking and hedge fund industries as a financial analyst.
His background in finance has made him an expert in deciphering financial statements and uncovering deep value and income opportunities. He has written for various websites and financial magazines with a focus on the resource sector and contrarian investment opportunities.
Located at: Seattle
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