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This article was originally published on Benzinga.
GreenWave Advisors is a New York City-based firm that provides financial analysis and research for the legal cannabis industry. It was founded in 2014 by Matthew A. Karnes, a former sell side and buy side equity analyst.“We collect data and analyze the trends in each state market, as data that is provided is fragmented and generally not consistent among each market,” Karnes told Benzinga’s Javier Hassein a recent interview. “So, we try to normalize the information and help investors understand the trends that are emerging in the industry.”In its most recent report, “The State of the Emerging Cannabis Industry (Third Edition),” GreenWave shared a look into the industry’s background, the tax code, banking and size of the markets—among many other topics. The complexity of the report picked Javier’s interest, and drove him to reach out to ask a few questions.Javier Hasse: In your report, you say that you expect all 50 states and D.C. to have either medical or fully legal cannabis by 2021. So, you are talking about a nation-wide legalization within the next five years. Could you elaborate on this?
Matthew Karnes: I expect, by 2021, that every state will have a program in place, whether medical or fully legal.However, this is not based on federal legalization; what I mean by that is that it will be up to each state to decide. It should be noted that this is assuming that the Trump administration does not interfere with anything.We approached this [issue] state by state and looked at all of the legislation that is on the table, that has been presented, whether or not the state has already decriminalized marijuana… And, I do believe that as the momentum builds, it will accelerate the implementation of those states that have long been opposed to marijuana. A perfect example of that would be Arkansas, which just passed [cannabis laws].When I started this in 2014, it wasn’t even on the radar. So I think it’s not unlikely to make that assumption [of nation-wide legalization by 2021], given that each state will look at their neighbors and say, “Well look, they’re enjoying these tax revenues. Why shouldn’t we?”
JH: Also, by 2018 you project 17 fully legal markets; that’s eight more than we have now. Which states do you see legalizing adult use next?MK: This is just the number of states that will have legal markets next year. So, I see 12 medical markets and 17 fully legal states (some of which include now medical that will “convert” to fully legal once recreational use is legalized).I think some of the states that have medical programs already will implement or legalize recreational use soon. So, for example, Connecticut, Rhode Island and Vermont, could be next given the proximity to Massachusetts. I could also mention Arizona, Michigan and Ohio among others. These are just some of the states that will contribute to the overall $30 billion market by 2021—timing of other states to legalize is provided in our new report.Also note that, while these states might become fully legal, some may not have yet fully implemented a recreational use market. So, for example, Arizona will vote in 2018 for recreational use, but sales for that year will be medical only.The State Of The Emerging Cannabis IndustryAs per GreenWave’s most recent research note, legal cannabis sales in the United States hit $6.5 billion in 2016. This differs from other figures, like the ArcView Group’s $6 billion estimate.“I am not familiar as to how others approach sizing the market,” Karnes explained. “All I can do is let the reader know that we provide full transparency as to how we determine our estimates—and it truly is an estimate because two of the largest markets (California and Michigan) are unregulated and provide very little information. This is where my prior experience as an auditor and Wall Street analyst becomes critical in analyzing the information.”“Then also we have developed an industry thesis,” he continued. “One of the things that I’ve been talking about is that we’re at the beginning of a marijuana market metamorphosis, where we [at GreenWave] think that the [states with] dual markets will combine and consolidate into one larger market, because it is not practical to operate two markets in any state, as there are duplicate efforts involved. We have seen this in Washington and Oregon, and now, California is discussing this as a possibility as it moves forward with developing a regulatory framework.”