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State Laws Crucial for Cannabis Entrepreneurs

When most would-be entrepreneurs think about the cannabis industry, they tend to focus on states where it’s been thriving for many years. They look at the booming economies in California, Colorado, Oregon and Washington and assume that entering the market in their own state will produce similar spectacular results. Sadly, the truth is that they’re usually wrong. In Minnesota, for example, the state’s two licensed medical marijuana manufacturers have lost nearly $11 million in just two years.

As in any industry, the market potential of any cannabis operation rests on many factors, including geography, population, demographics and market share. But in the highly regulated medical marijuana industry, no factor weighs heavier than state laws. They determine everything from where you can set up shop to what products you can sell to who your customers are.

Who Can Participate

When analyzing market potential in your state, one of the most important factors to consider is who your potential customers are. In virtually all states, the law limits medical marijuana use to patients with certain “qualifying conditions.” And what these conditions are will to a great extent determine the size of your customer base.

Take, for example, the diagnosis of chronic pain. Many states include it as a qualifying condition in their medical marijuana laws. But as of this writing, Connecticut, Florida, Georgia, Illinois, Michigan, New Hampshire and Utah do not. Given that an estimated 100,000 million Americans currently suffer from chronic pain, this is, in itself, a major determinant of market potential. In fact, setting up shop in a state that excludes chronic pain as a qualifying condition might be entrepreneurial suicide.

Adding New Conditions

Another important consideration is the process for adding new conditions to the list of qualifying diagnoses. In most states, an independent commission has the authority to add new conditions without the intervention of lawmakers or the creation of new laws. In New York, for example, the Department of Health added chronic pain as a qualifying condition in March of this year. The result was an almost two-fold increase in the number of patients enrolled in the state’s medical marijuana program in just eight months. Similarly, when Minnesota added severe chronic pain as a qualifying condition in 2015, medical marijuana enrollment nearly tripled in that state.  

Restrictions on Products 

Yet another factor that impacts market potential is what products the law allows. In several jurisdictions, including New York, the sale of smokeable cannabis flower is prohibited by state law. So despite the recent inclusion of chronic pain as a qualifying condition, it’s unlikely that the New York market will grow as rapidly as one might predict. Patients who want smokeable marijuana will simply buy it from black market sources, further diluting market share.

The Number of Dispensaries

It seems logical that the number of dispensaries in a given location would impact medical marijuana sales. Yet it’s hard to determine exactly what the optimal number and distribution of dispensaries is. Too few, and patients will simply buy their product from black market sources or do without. After all, who wants to pay a fee to register and then drive 100 miles to a legal dispensary to get a 30 day supply or a few ounces of weed? Too many, and the market is spread too thin. (Although Colorado has hundreds of dispensaries and the market there is on fire.)

Obviously, breaking into the medical marijuana business requires a great deal of planning and careful thought. And the first thing to think about is your state laws. Even in California, where medical marijuana has been legal for nearly 20 years, new laws going into effect next year are expected to send prices soaring and make sales of cannabis leaf so unprofitable that they’ll be obsolete. How this will effect the industry as a whole is still unclear. But it’s a great  example of how changing laws can turn a profitable business model on its ear.

Learn More

At the Carmoon Group, we offer a broad range of insurance coverage for cannabis entrepreneurs. With over 20 years of experience in the business insurance industry,  we have the knowledge and expertise to create a program that meets your exact needs at a price you can afford. So give us a call today to set up an appointment for your insurance review. Or just reach out online and we’ll get back to you at a convenient time.  

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Floyd Arthur

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