top urgent

6

Week 2 Activity – Case Selection

Kennia Brumby

Strayer University

MGT 599 – Management Capstone

April 14, 2024

Case 3: Pot of Gold? The US Legal Marijuana Industry's Analysis

Introduction

The paper analyzes the case study, 'Pot of Gold? The US legal marijuana industry' by discussing the potential of the industry and the factors that have made it difficult for the sector to grow despite the identified benefits it has on the economy. The problem explored in the paper is the slowed growth of the marijuana industry since the start of marihuana legalization. In the analyses, the paper will summarize the facts of the case study, a description of the problem, and how it happened. Besides, it will discuss the history of the problem and the external problems that led to its manifestation.

Facts of The Case Study

One of the facts from the case study that supports the lucrative nature of the marijuana industry is the amount of revenue earned by the businesses that have tried their fit in the venture. According to the case study, the sales of legal marijuana resulted in a raise of $ 18.5 billion in 2020, while companies raised $ 120 billion in finance during the period (Robert 1). Moreover, in the early months of 2021, there was estimated continuous growth of marijuana use in the country and investments. Further, there was increased venture capital and initial public offerings (IPO) that led to a buzz of excitement in the industry. The aggregate marijuana stock index was around $ 65 billion at the end of March 2021 (Robert 1). The management consulting firm, A.T., indicated that there is a potential multibillion-dollar opportunity in the industry.

The case study analyzes various companies that ventured into the marihuana business and the significant investments they have made, which is an indication of the potential in the sector and the confidence the business has in the venture. For example, MedMen Capital, founded in 2016, which is a publicly traded US-based cannabis company in California, invested $ 383 million. Besides, Turatara Capital, a cannabis-based pharmaceutical company founded in 2014, invested $ 93 million in its business. Another company is Privateer Holdings, founded in 2010, is another business that deals with marijuana-infused candies and cookies in the country and invested $ 228 million in the business (Robert 1). The three case studies are evidence of the industry potential and confidence the business has in marijuana-related products, making them invest heavily in the sector. Caputi (2) indicates that marijuana-based medical products are sold in 33 states in the U.S. (Robert 1). This shows that there have been many companies and dealers involved in the production and sales of these products, indicating the industry's potential.

The US market for marijuana is segmented between legal and illegal because of the different legalization status of marijuana in different states and between medication and recreation due to the varying uses of the substances. In 2017, there were 33 million users of marijuana as per the Gallup Poll, while the Marist poll indicated that medical marijuana users were 55 million marijuana business daily, 1.7 million. On the legal sales of marijuana in 2017, the amount was $ 9 billion according to BDS Analytics, $ 5.1 to 6.1 $ billion as per the Marijuana Business, with Medical sales accounting for 60% of the total and recreational 40% (Robert 1). Some leading states in legal sales include California, Washington, Colorado, Arizona, and Michigan, respectively. Over the years, the sales of legal marijuana in the United States have been on an upward trajectory, with data from 2016 indicating a sharp increase in sales. Moreover, in 2019, 545, 602 people were arrested on marijuana-related charges, with over 90% found in possession (Robert 1).

The Problem in The Case and How It Happened

The case study explores how the legalization of the marijuana industry has taken centuries despite the promising nature of the venture. It points out how the industry is lucrative, yet there are many materials that have impacted its growth. According to the case study, the marijuana industry is faced with many challenges that affect its growth and development, specifically due to the confused legal situation surrounding the sector that affects the entry of other players, as well as limiting the existing businesses from realizing their potential (Robert 1). The issue started when the sector was identified as a potential multi-billion-dollar opportunity due to the demand for cannabis-based products such as beverages, OTC drugs, cosmetics, and skincare. This led to the start of legalization of the production, use, and sale of marijuana in some states in the country. The federal law was the major hindering factor in the US that makes the production, sale, and possession of marijuana illegal. As noted by Garriott (3), for the last 100 years, the government has maintained that marijuana is a regulated substance that is as harmful as other drugs like heroin. Hence, despite the many uses of marijuana, the government focuses on one aspect in maintaining and retaining the existing legal framework that controls the production and sales of marijuana, which has been detrimental to the growth and development of the sector (Mallinson & Hannah, 4). With the potential identified in the marijuana sector, there is no uniform legal framework in the country that would make it possible for the business to venture into the business.

Moreover, each state has its own complex regulatory structures, which differ, impacting the growth and development of the marijuana industry. As pointed out by Sabet (5), the federal law that illegalizes the use and sale of marijuana for any purpose conflicts with the laws passed by other states, such as Texas, Maryland, Arizona, and New Jersey, that have legalized the commercial sale of marijuana. Hence, the federal government does not provide the right direction or pronounce itself well on its stance on the issue of legalization of marijuana in the country to tap its potential benefits. As indicated in the case study, the inauguration of Joe Bidden as the US president seemed a promising opportunity for the marijuana industry, as during campaigns, he had indicated that he favored decriminalizing marijuana possession (Robert 1). However, a few later, he has not given any indication of removing marijuana from the federal government's list of illegal drugs. This has been the major roadblock to the growth of the marijuana industry, affecting its development.

History of The Problem and External Factors at The Time

The legalization of marijuana started in 1996 when California was the first state to allow the sale of marijuana for medical purposes (Robert 1). In 2014, Colorado and Washington followed the legalization journey, becoming the first two states to permit the production, sale, and consumption of marijuana for recreational purposes (Robert 1). By the start of 2021, the using marijuana for medicinal uses was permitted in 35 states after doctors' recommendations, while 15 states allowed its use for medical purposes (Robert 1). The 35 states where the recreational use of marijuana is not legalized, 15 made it illegal for possession, though they enforced laws against consumption (Robert 1).

Various external factors have affected the growth and development of the marijuana industry. One of the factors is cultivation, where one requires a license and a growing facility. However, despite the profit margin attributed to the crops, a large amount of the money goes to direct and indirect costs, with higher taxes and license fees charged, discouraging many farmers from venturing into the business. Balla & Abrams (6) note that the Drug Enforcement Administration (DEA) is involved in the regulation of marijuana cultivation rules, which results in the development of strict measures. The other factor is the separate regulatory regimes and licensing procedures, which are costly and affect profits. In addition, competition in the three stages of the value of the marijuana chain, which include cultivation, manufacturing, and distribution, is greatly influenced by the minimal available licenses, which impact the thriving of the industry (Robert 1). In addition, the stringent purity and safety requirements and greater commitments required for medical marijuana affect the entrance of other players. The case argues that the government will continue to exert dominance and influence over the development of the marijuana industry in the future through its policies, leading to the continuous illegality of marijuana at the federal level while it is legalized at the state level (Alharbi, 7). This illegality at the federal level makes it challenging to transport marijuana across the states, affecting the growth of the sector due to the limited entry of other bigger players in the industry. These factors have affected the growth of the marijuana industry due to their restrictions and discouragement of the entrance of new players.

Conclusion

From the research, the marijuana industry has great potential based on the amount of investments the companies have made in the sector, as they have confidence it is worth a venture. Moreover, the high rate of marijuana use in the country shows that there is a great market for the substance. However, the illegalization of marijuana by the federal government makes, significantly affects the production and sales of marijuana, affecting the growth of the industry. As such, the little progress made in the sector can be attributed to the legalization of marijuana by various states. Thus, the federal government is the major roadblock to the thriving of the industry as it restricts the sales and distribution of marijuana across the states.

List of Sources

1. Robert M. Grant. 2021. Contemporary Strategy Analysis: Text and Cases. 11th edition Wiley Global Education

2. Caputi T. L. (2020). The Medical Marijuana Industry and the Use of "Research as Marketing." American journal of public health, 110(2), 174–175. https://doi.org/10.2105/AJPH.2019.305477

3. Garriott, W. (2020). Change is in the air: The smell of marijuana after legalization.  Law & Social Inquiry,  45(4), 995-1026. https://doi.org/10.1017/lsi.2020.6

4. Mallinson, D. J., & Hannah, A. L. (2020). Policy and political learning: The development of medical marijuana policies in the states.  Publius: The Journal of Federalism,  50(3), 344-369. doi:10.1093/Publius/pjaa006

5. Sabet, K. (2021). Lessons learned in several states eight years after states legalized marijuana.  Current Opinion in Psychology,  38, 25-30. https://doi.org/10.1016/j.copsyc.2020.07.018

6. Balla, A., & Abrams, D. I. (2020). Questioning the New Drug Enforcement Administration Proposed Rule to Facilitate the Cultivation of Cannabis for Research Purposes.  Cannabis and Cannabinoid Research,  5(3), 188-190. https://doi.org/10.1089/can.2020.0057

7. Alharbi, Y. N. (2020). Current legal status of medical marijuana and cannabidiol in the United States.  Epilepsy & Behavior,  112, 107452. https://doi.org/10.1016/j.yebeh.2020.107452