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The New Face Of The Marijuana Industry In The US, Circa Q1 2015

The marijuana business is growing. There is no turning back. The industry grew 74% last year according to the most widely available stats. But it actually grew much further and faster than that. The main issue has been acceptance - a battle that has raged now since the passage of the Controlled Substances Act in 1970. And on that score, the tide has clearly turned. Marijuana is fast becoming America's drug of choice.

This year will see more regulation, even in test forms (and there are several attempts in markets all over the country). Those in the industry will also see more legal battles and greater scrutiny on the business end of things as compliance becomes more established and routine. Regardless, however, of the considerable challenges now dead ahead, it is safe to say that the marijuana sector will continue to steamroll on as the economic superhero, if not Jolly Green Giant of the American economy for some time to come.

The sexy part of the market is what has been loosely termed "the recreational space," although this is a misnomer. What this actually means is the part of the market that is private and marketing goods and services to a young demographic with money to spend and a yen to "rebel." Preferably legally, or at least in circumstances where not facing 10 years mandatory criminal if not federal sentencing.

The undervalued, yet far more valuable part of the market is in fact medical. Despite strange politically driven messaging that started to show up last year that portrays Cannabidiol (NYSE:CBD) as the "only" medical use cannabinoid, Tetrahydrocannabidiol (NYSE:THC) is also used for medical purposes. Conditions that involve chronic pain, PTSD and movement disorders all require this part of the plant. This is why, for example, doomed proposals in Washington right now to eliminate all business taxes and stick all consumers with a 37% sales tax will never survive, even in state. Medical users also use more cannabis than recreational consumers. Israel, for example, has created a basic medical allowance of about an ounce a month, with the ability to increase dosaging based on individual need. If the statistics for just PTSD patients are applied in an American context, the numbers are staggering. That alone is over 10% of the population.

The reality is that the companies that are thriving, even in the "recreational space" are those who are serving both markets. This is true both of commercially produced cannabis (including edibles, vapes, and some of the fancier gear) as well as the folks at the production end.

This is actually a very good thing in terms of overall industry development. Strong medical and industrial markets mean a basic floor of industry operations that supports the much smaller rec market in every state. This is especially true in the hydro part of the biz, and this will increasingly play a stronger and defining role in the industry nationwide. Colorado's indoor market was the beginning of this trend, but far from the last. Nevada, New York and Minnesota have changed the game for good on that score. Most new markets outside of the South and Indian reservations will probably have, from now on, a strong indoor component if not requirement. That is certainly true of all cannabis grown for consumption. Industrial hemp is another matter.

From a business perspective right now, the industry is still sorting itself out. Federal restrictions on the drug, which hinge on its Schedule I classification, will probably be eliminated within the next four years in the United States. It is possible that this could happen before 2016, but unlikely.

That in turn will drastically and fundamentally define the national market, even if it is driven by state regulations and restrictions in the short term. It is already starting to as in Alaska which may introduce regulations that encourage out of state deep pockets over home grown innovation.

Bottom line, however, is that 2015, with its evolving medical markets now all over the country as well as efforts to change state and even federal law, will be another banner year for a biz which has not even begun to show its superhuman economic impact if not powers.

Last year, around this time, the SEC was just waking up to a new semi-legal industry buzz to contain. This year, there are moves to finally reschedule the drug on Capitol Hill. If there is any one defining trend for this year for the market, it is still not only bullish, but chomping at the bit.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.