A Foolish Take: Legal Marijuana Sales Could Still Grow

By John Maxfield Markets Fool.com

If you're interested in business or investing, it's hard not to be curious about what's going on in the marijuana industry.

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The market is booming thanks to an ever-increasing number of states that have legalized cannabis for both medical and recreational use. Legal sales of marijuana grew 30% last year, reaching $6.7 billion, according to Arcview Market Research.

What's so interesting about the market for legal marijuana, however, is that it isn't carving out a new niche, so to speak, as other incipient industries have had to do. It's instead just displacing the illegal market for pot.

One advantage of this is that it enables states and municipalities to tax sales that would otherwise be off the record. In 2016, for instance, Colorado bagged just under $200 million in tax revenue from legal marijuana sales, much of which will go to fund the state's school system.

Data sources: The Huffington Post, Arcview Market Research. Chart by author.

Another advantage, and this is of particular interest to investors, is that the pre-existence of an illegal market for pot makes it easier to forecast the size of a mature legal market. To this end, Arcview estimates that a total of $53 billion worth of marijuana was sold in North America last year, with 87% of that consisting of illegal sales.This implies that the legal marijuana market could still experience a more-than-sevenfold increase in size, assuming the trend toward legalization continues.

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Growth like this is enough to intrigue any investor, but a word of caution is warranted.Unless and until Congress formally decriminalizes marijuana, few (if any) companies in the industry will gain access to reputable stock exchanges such as the New York Stock Exchange and Nasdaq. And without the transparency demanded by these exchanges -- not to mention the Securities and Exchange Commission -- the rule for investing in marijuana stocks for the foreseeable future is: Buyer beware.

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