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Marijuana - the new dot-com bubble?

Published time: January 27, 2014 16:26
Edited time: January 28, 2014 11:06
Reuters / Rick Wilking

Reuters / Rick Wilking

Legalization of marijuana for recreational and medical use in 20 US states has seen a boom in cannabis-oriented businesses. Experts say the market can jump to $10.2 billion by 2018, warning of a possible repetition of the dotcom bubble of the late 1990s.

The legal pot industry in the US might be making its first steps, but anyone trying to capitalize on its growth may find the "virgin" market overheating.

Gone are the days when a few entrepreneurs were helping pot legalization enthusiasts raise money for their projects. The marijuana market is now swarming with investors ready to risk money buying into cannabis industry companies.

It is already developing its own advertisement, insurance, logistics and security services. After Colorado marijuana shops got $1 million on the first day of legal sales, the question of profitability appears to be settled.

The legal marijuana market is expected to grow from $1.4 billion in 2013 to $2.3 billion in 2014, predicts ArcView Market Research. It forecasts the legal marijuana market reaching $10.2 billion by 2018.

When the Wall Street Journal publishes articles discussing fantastic pot shop revenues, companies like Seattle-based Privateer Holdings, which pioneered the financial market for cannabis industry in 2010, are feeling the growing competitiveness within the industry.

Though the federal Controlled Substances Act still lists marijuana as a prohibited Schedule I drug, President Barack Obama has practically blessed the cannabis industry, saying that smoking marijuana is “not very different from the cigarettes” and “no more dangerous than alcohol”, and US authorities are likely to treat the industry like any other legal business.

Last week the Obama administration announced that marijuana-related businesses should have access to the US banking system despite the fact that marijuana still remains illegal under federal law. This might help US authorities get better control of the money flowing into the newborn industry which is currently operating solely on a cash basis.

It is unlikely that once legalized the pot industry could be reversed, as further legalization of marijuana in the US directly correlates with the results of future elections.

The web is full of articles proclaiming “marijuana industry boom” and interviews with those harvesting first millions from the initial cannabis market surge.

Yet even the pot market "sharks" warn that this business is much more complicated than it appears. No one can predict when the period of enthusiastic pot start-ups would end, giving way to big business with really big money, just like it happened with the dot-com bubble in the 1990s, which exploded to clear the turf for transnational corporations like Amazon, Google and Facebook.

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