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July 4-20: California Could Make Billions on Legal Marijuana

With 39 million people, and a booming 20-year-old medical marijuana trade, California politicians will soon have $1 billion a year in extra cash to spend — if the new recreational marijuana initiative passes on the November ballot.

The legal medical marijuana market in the United States totaled about $5.7 billion in 2015, up $1.1 billion from the prior year, a 24 percent gain. California was the market leader, with a 47 percent market share on $2.7 billion in sales.

But California medical marijuana sales were forecast to be flat in 2016, and to trend down over the next five years due to tightening oversight and stricter regulations of the industry. Tax revenue to the state from medical marijuana sales was also expected to decline, from $109 million in 2015 to about $59 million by 2020.

But if state voters approve the California Control, Regulate and Tax Adult Use of Marijuana Initiative, which qualified for the state November ballot on June 28, the total California market for legal cannabis could reach $6.6 billion by 2018, according to the fourth edition of the “State of Legal Marijuana Markets” report compiled by New Frontier and ArcView Market Research.

Legalized marijuana and hemp would be subject to a California state excise tax rate of 15 percent on final sales, plus a cultivation tax of $9.25 per ounce for flowers and $2.75 per ounce for leaves. Breitbart News forecasts that California would generate about $1 billion in taxes that state politicians could spend on a discretionary basis.

The initiative would allow adults age 21 and older to possess up to one ounce of marijuana and to cultivate up to six plants. It would also set rules for commercial cultivation, manufacture, tracking and licensed sales; and it would create regulations to prevent cannabis use by children, as well as penalties for impaired driving.

A similar recreational marijuana initiative, called Proposition 19, failed to pass by just 3 percent in 2010. But a statewide Probolsky Research poll in February 2016 found that the new initiative enjoys 59.9 percent support from likely California voters, while only 36.7 percent would vote against the initiative.

Currently, recreational marijuana is legal in the District of Columbia and the four states of Colorado, Washington, Oregon and Alaska. As of today, nine states have recreational or medical marijuana proposals headed for the November 2016 ballot.

The expectation of mainstreaming has kicked off a huge marijuana private equity and venture capital industry. Major players include Cannabis Capital, Blast Funding LLC, David Hess, Green Growth Investments, Privateer Holdings, ArcView Group, Duchess Capital and Emerald Ocean.

There are already 330 California companies that are large enough to have joined the National Cannabis Industry Association. But venture capital and private equity firms are still interested in putting new “money to work” through equity investments in California cultivators, dispensaries, laboratories, software developers, insurers and more.

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