Today we have the results of last week’s DataTrek US Legal Marijuana Industry Survey. We had another terrific turnout for this survey, so thank you to all those who took it. Before delving into the results, here’s some background:
- There were 10 questions total, with randomized potential responses.
- Only fully completed surveys counted towards the totals we present.
- We received a total of 271 unique responses. The vast majority (89%) came from DataTrek readers, while the balance came from social media/other sources.
- The survey was open from Wednesday August 21st through Tuesday August 27th.
Here is a breakdown of the questions and responses (highest responses in bold), and our takeaways from each (percentages may not total to 100% only due to rounding):
#1: Do you live in a US state/Canada where recreational marijuana use is legal?
- No: 68% (184 votes)
- Yes: 32% (87 votes)
#2: Are you in favor of legalizing recreational marijuana at the Federal level in the US?
- Yes: 73% (199 votes)
- No: 20% (53 votes)
- No opinion: 7% (19 votes)
Our take: That a majority of respondents are in favor of federal marijuana legalization is no surprise to us, as it is in line with the general population. A record high two in three Americans currently support marijuana legalization according to Gallup’s latest long-running survey on the topic.
#3: Do you think the US will legalize recreational marijuana use at the Federal level?
- Yes (within the next 5 years): 50% (136 votes)
- Yes (within the next 10 years): 38% (103 votes)
- No: 8% (23 votes)
- No opinion: 3% (9 votes)
Our take: The fact that nearly nine in ten respondents think recreational cannabis will be federally legal within the next ten years shows why this is an important growth industry for investors to keep watching. It also shows why interest in investing in public marijuana companies continues to garner so much attention.
#4: Would you be more inclined to vote for a political candidate if their views on legalizing recreational marijuana use matched your own?
- Indifferent: 46% (125 votes)
- Yes: 43% (116 votes)
- No: 11% (30 votes)
Our take: Given the widespread support for marijuana legalization on a national level, we were surprised to see that almost half of respondents were indifferent relative to a political candidate’s view on the matter. Many Democratic presidential candidates have included national cannabis legalization in their campaigns, but it may not be as strong of a pull to the polls as they think. Granted, “yes” came in a close second, but we thought it would have been higher. This may mean cannabis takes longer to be federally legalized, as it may not be as much of a make or break issue as other more pressing matters in the minds of voters.
#5: Which part of the marijuana value chain do you think offers the best long-term investment opportunity?
- Midstream (i.e. Ancillary businesses, such as testing labs, extraction, packaging, etc.): 49% (134 votes)
- Upstream (i.e. Growers, such as Canopy Growth, Cronos Group or Tilray): 27% (74 votes)
- Downstream (i.e. Retailers/Dispensaries, such as MedMen): 23% (63 votes)
Our take: That nearly half of respondents favoring midstream companies in the marijuana industry’s value chain makes sense to us. This way, investors aren’t as exposed to the capital risk of growers or retail risk of dispensaries, but still benefit from exposure to a major new, disruptive growth industry.
#6: In your opinion, what are the biggest impediments to the US legal marijuana industry aside from being federally illegal? (Choose one or two)
- Wide lack of banking access: 33% (153 votes)
- Onerous/patchwork regulatory structure on a state level: 28% (132 votes)
- High taxes (helps black market stay competitive): 24% (112 votes)
- Lack of management talent: 5% (23 votes)
- High capital requirements: 3% (12 votes)
- High operating losses: 2% (11 votes)
Our take: There are three issues that clearly worry investors about the legal marijuana industry. 1) Marijuana-related businesses largely operate in cash and do not have access to traditional banking services like other retailers because cannabis is still classified as a Schedule I drug. That makes banks wary of serving the space and creates big headaches for the industry as a whole. 2) The legal marijuana market is still young and not yet standardized. This causes a host of issues amid often changing and laborious regulations. 3) High taxes in states like California and Washington have allowed the black market to keep much of its market share, causing dispensaries to miss out on new and regular customers.
#7: Which cannabis compound do you think offers more upside for growth?
- CBD (non-psychoactive and may have therapeutic benefits): 66% (178 votes)
- THC (gets users high): 34% (93 votes)
Our take: We agree with the majority here, as there are numerous use cases for CBD when it comes to treating many ailments from insomnia, pain and anxiety to depression, inflammation and seizures. CBD is also non-psychoactive, so it has a larger potential addressable market for people who do or do not want to get high. CBD is currently being used in everything from food, drink and pet products to the health/wellness, sport and beauty industries.
#8: Do you think legal marijuana businesses are positive for local economies?
- Yes: 82% (222 votes)
- No: 18% (49 votes)
Our take: We can understand why a majority of respondents think marijuana businesses are positive for local economies given that Americans have had +5 years to see states like Colorado and Washington bring in hundreds of millions of dollars in tax revenue. Colorado even crossed the $1 billion tax revenue mark this past May since stores first started selling retail cannabis there in 2014.
#9: Are you able to invest in marijuana-related companies?
- Yes: 77% (210 votes)
- No: 23% (61 votes)
Our take: Not all investment platforms allow investors to purchase public marijuana companies or cannabis-based ETFs since the drug is federally illegal, so it was a welcomed response to see that most people taking our survey have that option.
#10: Do you think you can profit from investing in marijuana-related companies in the absence of federal legalization?
- Yes: 65% (175 votes)
- No: 35% (96 votes)
Our take: Also a positive response given that national marijuana legalization may be five or ten years out from now.
Bottom line: the US legal marijuana industry is still nascent and very complex, but investors see a clear pathway to profiting from the sector:
- This survey shows broad support for national legalization, but this may happen later than some expect given that it’s not necessarily a top priority when choosing to back a political candidate. This potential delay could continue to cause problems that investors worry about most, such as a lack of banking access, burdensome regulations that vary by state, and high taxes when trying to compete with the black market.
- Even still, respondents think people can profit from investing in the marijuana space without federal legalization. They favor ancillary businesses that serve marijuana-related enterprises rather than those directly in the industry, and also think the therapeutic benefits of CBD (non-psychoactive) provide more upside for growth than THC that aims to get users high.
- In the end, the wide-ranging belief that marijuana businesses are positive for local economies is one major reason Democratic politicians/candidates are pushing for legalization across the US as they look for another source of tax revenue. Broader legalization could mean higher adoption rates, potentially increasing the total addressable market and growth rates of the US legal cannabis industry as long as tax rates and regulations get rolled out reasonably.