Will a Surprising Threat Take a Bite out of CA’s Booming Medical Marijuana IndustryTo say the legalized medical marijuana business is flourishing in California is a massive understatement.

Before the easy victory of Prop 64 in November’s election ushered in recreational cannabis use for Californians aged 21 and over, the Marijuana Policy Project estimated that the state was home to over 700,000 medical marijuana patients (nearly 2% of California’s total population as of 2015). And extending those numbers beyond the state’s borders, that figure represents a cool half of the entire country’s medical marijuana pie.

Analysis by Troy Dayton (CEO of ArcView) reveals that around $2.7 billion in medical cannabis sales were generated in California the year before last, a sum that accounts for over 60% of all sales in that category across the nation. Further, that whopping figure is also noteworthy because it reflects more than 50% of all U.S. marijuana sales for 2015, both the medical and recreational varieties.

It’s indisputable: medical marijuana in California is a booming business; and considering the state was the first to offer medical marijuana in 1996, it’s a business with deep roots here.

However robust at the present moment, though, might this particular branch of the cannabis industry have a clouded future?

What will a new president mean to medical cannabis?

It’s true that the future of legal pot use in general is not a given, despite the pro-votes on several states’ ballots this fall (a total of 28 states and D.C. now allow the use of medical marijuana).

Although president-elect Trump has expressed support for medical cannabis programs regulated by individual states, his appointment of Senator Jeff Sessions (R-Ala.) for U.S. attorney general may spell trouble for the country’s marijuana machine. Sessions has not been subtle in his opposition of legalizing the substance, and he will soon be in the position to potentially unravel some of the more forbearing threads woven during Obama’s terms in office.

But even prior to the changing of the guard, pot may have been popular but not exactly blessed.

The U.S. Drug Enforcement Agency (DEA) had the chance to reclassify cannabis last summer (as a Schedule 1 substance, it’s illegal at the federal level) but decided against it. The agency pointed to the thin understanding of marijuana’s chemical characteristics, along with limited clinical information and safety data, as driving its decision not to demote the drug to a less dangerous category.

(Some practical concerns associated with this classification: marijuana companies are not able to write off customary business deductions and therefore operate under higher corporate tax rates, and because financial institutions don’t make it a habit of involving themselves in ventures illicit at the federal level, cannabis businesses must resort to cash-only.)

That said, it may be all the more remarkable that on the state level, California’s medical marijuana industry is most hale and hearty.

What will a new recreational sector mean to medical cannabis?

One crystal-ball musing after the election is whether the green light for recreational pot in the state will slow down medical weed’s steady growth.

ArcView and New Frontier have estimated that the legal sale of marijuana in California will reach $6.6 billion in 2018. But thanks to Prop 64, for the first time soon those sales will not be exclusively for medical use. Adults 21 and over will be able to legally purchase cannabis, which means that some individuals using the drug to treat a medical condition may opt not to jump through the necessary hoops to get it via a physician’s recommendation.

Of course individuals under 21 for whom medical marijuana might offer benefit will still need the services of medical dispensaries, but notwithstanding that relatively small percentage of cannabis consumers, once recreational use is officially permitted in the state (it’s expected to be implemented over the coming year), the medical side of the industry might feel like an extra appendage.

The concept of pivoting is nothing new in business (take, for example, Netflix expanding into live streaming while its more traditional—and ultimately, less successful—DVD-centric peer Blockbuster failed to embrace change). Once the doors to the recreational side are flung wide, it remains to be seen whether California’s mega-medical-marijuana industry will find ways to stay relevant for patients looking to cannabis to alleviate health problems (perhaps by offering other holistic services and thereby distinguishing themselves from recreational dispensaries).

Ironically, though perhaps not unsurprisingly, California voters’ enthusiastic acceptance of the recreational variety of the substance is what may weaken the medical side most dramatically, already decades into its growth.
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