Why investors are going crazy about legalized cannabis

Why investors are going crazy about legalized cannabis
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Legalization of recreational cannabis in North America has brought incredible profits to the states as well as businesses like GreenStar Biosciences Corp. (CSE: GSTR). Europe wants to follow the trend but is held back by overly cautious legislators.

In 2013, Uruguay became the first country to legalize recreational cannabis use. This has been quickly followed by many countries over the past six years, such as Canada or several American states. In some parts of the world, decriminalization has been chosen. This is particularly the case in Europe. This caution risks seeing European businesses left behind by their American and Canadian rivals.

The profits generated by legalization

The first studies that have emerged on the legalization of recreational cannabis show an impressive financial windfall. In 2016, in the United States, the industry enabled Colorado and Washington States to raise between $200 million and $300 million in taxes. That same year, Americans reportedly spent about $6.7 billion to legally obtain cannabis, according to Arcview Market Research.

Also in Colorado, in the first three years of the new legislation, nearly 18,000 net jobs were created. This is an impressive figure when you consider that the State has a population of only 5.5 million inhabitants.

In Canada, the state recorded a $186 million profit from taxes on cannabis in the first five months since legalization. Private businesses also capitalize on the new legislation. GreenStar Biosciences Corp. (CSE: GSTR) is one of them and together with their partner company Cowlitz, are one of the most promising companies in the cannabis stock market. Cowlitz is a Washington State-based producer and distributor of cannabis products that delivers high quality marijuana at competitive prices. They recorded an impressive $14.6 million revenue at the end of 2018 after only five years of operations. The company manages a steady $3 million quarterly revenue thanks to high demand on the market and a guaranteed supply, coming from indoor and outdoor facilities.

Cannabis tourism

The reason this industry is so lucrative is that it gives states the opportunity to pocket three times more taxes than alcohol. In total, for Colorado, it would be almost $500 million raised between 2014 and 2017. A windfall that will still have enabled the State to invest in education and drug awareness programmes.

This legalization has paved the way for mass tourism. Indeed, Colorado finds itself isolated, in the midst of states that have not legalized recreational cannabis. As a result, it attracts many cross-border commuters who wish to purchase this product in compliance with the law. This phenomenon can be found in many countries in Europe.

Cannabis in the European Union

In Europe, the majority of countries have opted for decriminalization. Consumption is allowed, as long as the law is respected. For example, Spain, Portugal, Italy, Switzerland, the Netherlands, Austria, Norway, Estonia, Moldova, the Czech Republic, Slovenia, Croatia and Spain have decided to no longer condemn consumers. In Germany and Poland, recreational cannabis is still illegal, but tolerated.

In concrete terms, decriminalization allows for very controlled consumption. In the Netherlands, for example, recreational cannabis can only be consumed in coffee shops and at home. In practice, people in Amsterdam smoke very regularly in the city without being fined. This business and “laxity” towards smokers works rather well for the Netherlands. A little too well.

As a result, the increase in tourism has become far too high for Amsterdam and other parts of the country. Some cities have taken strong measures. In 2010, a decision of the European Court of Justice allowed Maastricht to ban tourists from its coffee shops. Amsterdam, for example, has stopped advertising promoting the city. In response to the massive influx of cannabis tourists, The Hague (the country’s economic capital) became the first city in the Netherlands to ban cannabis in its city centre.

Not to become the new Amsterdam

Observing the problems encountered by the Netherlands, Luxembourg has taken radically different measures. The country is on the verge of being the first European state to fully legalize the use of cannabis for recreational use. However, the Prime Minister has already announced that he does not want to become “the new Amsterdam”.

Thus, Luxembourg will only allow residents of the country to obtain cannabis. Étienne Schneider, Minister of Health, is very firm and refuses any sale to border residents. The country’s objective is not to generate business around legalization, but to counter the black market. As Etienne Schneider explained, the ban only feeds the parallel circuit.

By legalizing cannabis for recreational use, Luxembourg aims above all to regulate this business. The objective? Provide its inhabitants with better quality products. The bill will only allow consumption in private. It will be prohibited on the street and in cafés. All the income will not go into the State’s pocket, but will be dedicated to a prevention fund that is very active in preventing many dangers such as drug addiction.

Cannabis and black market

In Colorado, as in Luxembourg, the initial idea was to take control of an illegal traffic that generated billions of dollars. Problem: in some countries that have legalized the recreational use of cannabis, the black market is growing.

Why? First, because the taxes are too high. In Colorado, the figure is 29.9%. This increase makes consumers cautious about buying cannabis legally, especially since the American state has also authorized the growth of its own cannabis plants. A decision that has contributed to the rise of the black market.

Colorado is isolated in the midst of states that have not legalized the recreational use of this substance. Thus, the various actors of the black market no longer hesitate to grow their plants in this area where it is legal, before selling them to consumers living in border regions.

Since 2014, the DEA, the agency responsible for combating drug trafficking, has estimated that it spends 15% of its time on cannabis. This figure has tripled compared to the period before legalization. Nearly ten states around Colorado are supplied with cannabis produced in Colorado.

Despite the difficulties faced in some areas legalization has proven to be largely positive and has employed hundreds of people and helped to improve the quality and safety of available products for consumers. As more states follow Canada and Colorado many of the problems associated with the black market are likely to diminish.