Is the Marijuana Industry Recession-Proof?


By Marguerite Arnold

August has been a rocky month for the international business community. Global markets have been whipped into a strange frenzy in the dog days of summer. First it was over concerns that Greece might default on its sovereign debt and leave the Eurozone. Then the strange ping pong drama of the meltdown of the Chinese stock market and the devaluation of the yuan gripped the financial world. The global economic temperature this month is absolutely “hot.”

While these issues may seem far removed from the marijuana industry, they are not. This starts with access to capital that many marijuana entrepreneurs are in search of right now, and many would-be green industry-minded venture capitalists and investor types are getting caught up in the international melee for any one of many reasons.

Investors are not only facing unstable international conditions however. The current short term performance of the U.S. economy seems strong, but there is the potential of a tightening of interest rates by the Federal Reserve this fall. While this looks increasingly unlikely as jitters of all ripple through the U.S. stock market if not broader economy, the rosy scenario painted by strong employment numbers is not the entire story. There are fears that the U.S. economy is headed back into recession.

Some in the marijuana industry, based on their experiences on the job in the period between 2009 and 2013, believe that this industry vertical is actually anti-recessionary, even if it is not entirely shielded by “market correcting” events.

It is too early to put final numbers on the industry this year, but the medical side alone is large, and expanding. The latest government figures on frequent marijuana users by the National Institute on Drug Abuse put the figure at 7.6 million people. Most credible estimates put that number—just on the medical side—far higher.

“The marijuana industry isn’t so much recession-proof as it is insulated from some of the bigger shifts in the economy. For many of these consumers, the money poured into this industry is not fulfilling a want, but rather, a need,” said Aaron LoCascio of Vape World. “The most obvious indicator is that vaporizer technology hit its stride during times of economic downturn. As vaporization become more recognizable, and its merits more visible, it diversified from just a few major brands to many.”

Jeremy Carr of BlazeNow believes that the marijuana industry, certainly in Los Angeles, acted as an anti-recessionary boost to the local economy, starting with “boots-on-the-ground” and “front-line” employment. “There were reportedly over 1,200 shops open during the recession each employing bud tenders, receptionists, security guards and managers seven days a week,” he said. “There was an untold number of indoor cultivations supplying the shops, each employing cultivators, assistants, trimmers, couriers, etc. I would estimate over 20,000 jobs were created at the height of the industry.”

The industry of the period just post-crash also had a local impact that went far beyond jobs. “The rent from these operations likely saved thousands of landlords from losing their warehouses and retail locations,” Carr said. “These cultivations and retail locations also provided work for contractors, HVAC specialist, electricians, security companies, equipment/nutrient manufacturers/retailers, real estate agents and other related services. A conservative daily revenue estimate per location is $3,000.” Using that estimate, Carr put the figure on municipal economic churn at about $3.6 million a day or $1.3 billion a year.

With forward movement in many states this year, even if whole plant legalization is not on the immediate horizon, the bottom line is that no matter what happens in the broader U.S. economy, the marijuana industry is an economic powerhouse to be reckoned with—and that means the best at reading industry tea leaves with access to capital stand to make money.

“This industry is just beginning to carve out the financial niche it’s going to occupy in the near future,” LoCascio said. “Investors are attracted to a growing marketplaces like this because it has nowhere to go but up. The biggest allure is the potential upside of the marijuana industry to become even further popularized as it becomes more accepted across the United States.”

Guest Contributor designates a writer who is guest publishing content with MJINews.

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