New York, NY / ACCESSWIRE / September 4, 2014 / The world of pot legalization has been moving so fast this year it's hard to keep up. So far in 2014, Maryland, Minnesota, and New York have passed legislation legalizing medical cannabis, with legislation pending in Florida, Ohio, North Carolina and Pennsylvania. A total of 23 states have now legalized the plant for medical use since 1996, and if three of the four ballot measures pending succeed, more than half the States in the Union will have legalized medical marijuana in a country where it is illegal on a federal level.
California was the first state to legalize in 18 years ago, but momentum has picked up significantly since then. Half of the 23 states where it is now legal have passed legislation within the last 4 years alone. Judging by the increased pace of legalization, the tipping point may have already been reached. It is now only a matter of time until all, or at least most states legalize marijuana for medical purposes. Recreational legalization is still in the early stages, with only Colorado and Washington on board.
Important to note is the general tone of the mainstream media towards legalization. Some examples taken from just this week alone include:
Newsweek, which reported on August 25 that painkiller deaths have dropped by 25% in medical marijuana states.
The Oregonian, the oldest continually published newspaper on the West Coast, whose editorial staff published an op-ed supporting full recreational legalization on August 23.
Fox News, which just published an uppity piece with video on how pot was promoted at the Emmys and how that "signifies how vast the movement is gaining acceptance across the country."
While this is certainly encouraging for cannabis enthusiasts, as legalization takes hold in each state, there is and will continue to be a mad dash for a limited amount of state licenses, with heavy compliance and security costs all around. In fact, continuing on the media theme, the Chicago Tribune published a piece last week about how cutthroat the medical marijuana competition is in Illinois, precisely because state restrictions are so draconian that it is extremely difficult to get a cannabusiness up and running.
That's not so good a situation for the average mom and pop medical marijuana entrepreneur, but what it does mean is that those who are able to maneuver their way through the bureaucratic red tape in time to grab up a limited number of licenses will be protected by a ring of steel regulation once they break through.
This is not at all surprising, and indeed happens in many industries. Recreational opioids like heroin are illegal, but lucrative prescription painkillers based on the same drug molecules that go through formal bureaucratic checkpoints abound. Gambling is illegal in most states, but those that are able to get licenses in legalized jurisdictions are greatly rewarded.
In the dash to acquire licenses and keep them in what will surely be a heavily guarded and regulated market, several pot stock companies stand to benefit. On the large cap side is Medbox (OTCBB: MDBX) which, in a fit of parabolic hysteria triggered by Colorado's recreational pot legalization, jumped from $10 to $74 in the space of two weeks. It has since crashed back down to $11 as sobriety has set in. Along with its collapsing stock price, its earnings collapsed from $465,000 to a loss of almost $1.5M last quarter year over year. However, a turnaround is very possible. Up until April, Medbox only dealt with medical cannabis peripherally, selling biometric machines that identify patients by fingerprint and dispense medication including cannabis for $50,000 a unit.
Since April, Medbox has formed six new subsidiaries in an attempt to concentrate its efforts on pot. These subsidiaries include specialization in medicinal hemp-oil concentrates and pharmaceuticals centered around cannabidiol (CBD), a medicinal cannabinoid, land acquisition and leasing to dispensaries and retail stores, banking services, armored transport, and an investment subsidiary for other marijuana companies.
Now that the stock has crashed from its highs and it is actually just now starting to focus on cannabis proper, the prospects of it having already hit bottom after its fall have improved.
Medbox, however, is not the only one to venture into the area of cannabis security and banking services. One new company offering similar options is Blue Line Protection Group (OTCBB: BLPG), a company serving over 60 marijuana dispensaries, both medical and recreational, in Colorado, Nevada, and Washington State. Blue Line ventured into this niche at the beginning of the year, while Medbox only formed its subsidiaries in April and has yet to get its feet wet in this area.
Blue Line is a full service security and compliance firm offering armored transports of product and cash, proxy banking services, and regulatory licensing compliance for its clients. With its first full quarter of operation now behind it, Blue Line pulled in $237,000 in revenue, a number that looks to expand next quarter after it signed Medicine Man, the largest marijuana dispensary in Colorado as a client.
Its latest move, announced August 26, was to open an office in Illinois to expand into its fourth state. Competition among dispensaries in Illinois is set to be especially fierce being that the current legalization structure is a four year pilot program during which only 60 dispensary licenses and 21 cultivation licenses will be issued by the state.
The restricted environment surrounding the cannabis industry is especially conducive to Blue Line and Medbox because it necessitates a strong security apparatus. Any government-sanctioned marijuana supply in a state where the plant is otherwise illegal will create a high value target, making private security a necessity.
Besides marijuana security and banking services, Blue Line and Medbox both serve as creditors to growers and dispensaries in need of short term loans. Both are just starting out on this front, with Blue Line having loaned $85,000 on 18% interest for one year to two clients last quarter. This is obviously very small scale, and to gain more exposure to the marijuana finance market, a more appropriate choice is Advanced Cannabis Solutions (OTCBB: CANN) which focuses on leasing real estate to the legal cannabis industry. However, the problem with Advanced Cannabis Solutions is that it hasn't actually done anything yet, but only plans to. It is nevertheless a company important to watch in the next year to see if any of its plans materialize.
The medical marijuana industry crossed $1.5B in the US last year, with recreational to be added by Colorado and Washington in the tally for 2014. Due to the fact that pot is still technically illegal according to federal law in any form, many banks will not work with medical marijuana dispensaries. This means that a significant portion of that $1.5B was transacted in cash, which requires armored transport in the absence of banking services.
As the industry grows and legalization momentum picks up, with this year possibly setting the majority-state point, that already $1.5B number will continue to grow while Congress continues to do nothing about legalizing cannabis on a federal level. That is a lot of cash to transport, making pot a very risky business.
As long as states keep legalizing, companies like Blue Line and Medbox will be in demand. While revenues seem likely to expand for both companies in the coming quarters given the expansion in Blue Line's client base and Medbox's new subsidiaries, the real question will be if expenses can be kept under control while the companies undergo aggressive growth strategies throughout the rest of this year.
Judging by the way medical pot has taken hold in the US and the legalization momentum in the last four years, an aggressive growth strategy seems all but necessary in the fast-paced cannabusiness world.
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SOURCE: Market Exclusive