Legal Cannabis Faces Competition from Black Market: 3 Stocks That Can Lead the Brigade – Yahoo Finance

The recent legalization of marijuana in several states in the US has had many people eager to invest in the emerging sector. The fast-growing industry has led to several legal dispensaries sprouting up throughout the states in which they are sanctioned in. Many people assumed with the legalization of cannabis that the illegal distribution of the drug would disintegrate but that has not been the case. As the legal marijuana business has grown substantially in recent years, so has the unlicensed dispensaries. In California, early projections estimated that cannabis tax receipts would reach $1 billion for 2018 but fell short with only $345 million collected last year.

The black-market dispensaries are cited as a major reason estimates fell short for the industry. Cameron Wald, executive vice president of Project Cannabis, stated that illegal dispensaries can sell the same product for 40% less than licensed dispensaries. The unlicensed dispensaries don’t pay taxes or permit fees to the cities they operate in, which allows them to undercut their legal competitors.

Cannabis industry attorney David Welch believes penalties enforced on the illegal businesses are too low to dissuade their operators to shut down because the profits they see outweigh the sanctions. Penalties are usually listed as misdemeanors, which usually just ends up being a fine that incentivizes the owners to reopen the store. The Los Angeles Police Department estimates there to be around 259 illegal dispensaries operating within the city while there are only 186 licensed dispensaries.

Many people see the continued legalization of marijuana as an opportunity to become a part of the next booming industry. The reality of the situation is that the legalization of the drug has failed to successfully eliminate the illegal distribution of it. While the industry is currently struggling to meet its potential, the underlying opportunity remains.

According to New Frontier Data, there is an estimated $70 billion in illegal sales nationally, which is 7X the size of the legal market. The current legal cannabis industry is only capturing a fraction of the market. If states like California can solve the black-market problem by either issuing harsher sanctions on illegal dispensaries or lowering taxes so legal dispensaries can compete, then it would bode well for the cannabis industry.

With all of this in mind, some companies still have the potential to capture a much larger share of the cannabis market, catapulting them into one of hottest industries everyone wants to be part of. Let’s take a look at three companies that can help the legal cannabis industry take the next step.

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