Say Hello to Medical Marijuana's Biggest Threat

Source: Flickr user Mark.

Although the jury is still out on the benefit and safety profile of medical marijuana, the American public, according to national polls, has practically anointed it a wonder drug.

Medical marijuana finds its legs It's not hard to understand why consumers -- especially those with potentially chronic or terminal diseases or disorders -- are excited about the idea of expanding marijuana's use for medical purposes. There are a number of clinical studies that have shown some level of positive correlation involving marijuana (or cannabinoids from the cannabis plant) in treating or alleviating symptoms of a patient's disease or disorder.

For example, an abstract study published in The American Journal of Medicine from May 2013 demonstrated that marijuana users had a 16% reduction in fasting insulin levels and a 17% drop in HOMA-IR (a measure of insulin resistance) compared to non-marijuana users. In other words, marijuana could help treat type 2 diabetes.

Medical marijuana's benefits aren't limited to just diabetes, though. It has also demonstrated some level of positive clinical efficacy as a treatment for Alzheimer's disease, Parkinson's disease, schizophrenia, certain types of epilepsy, and aggressive forms of brain cancer, just to name a few of the more notable indications. It's for this reason why 23 states have pushed through medical marijuana bills to give eligible residents access to the federally illegal drug.

Source: Flickr user Damian Gadal.

The biggest threat facing the medical marijuana industry Of course, the medical marijuana industry is facing a plethora of hurdles ranging from financial issues to legal issues. For instance, many legal shops have been unable to deduct items on their taxes or set up a deposit account with a bank. Additionally, they face the overhanging federal cloud stating that marijuana is an illegal plant. It's always possible that at some point in the future, the federal government could reinforce the ban on marijuana and put the industry in a crippling bind.

Despite many challenges, these aren't the biggest threats facing the medical marijuana industry. Instead, state legislators only need to look closer at legal states to find the real problem: an enormous black market.

The black market in action According to a report from The Associated Press, the effects of black market marijuana growers can be seen clear as day in Minnesota, arguably one of the strictest states for medical marijuana with just nine approved qualifying indications. Minnesota began selling medical marijuana legally just two months prior, but according to informal surveys and the statistics, some have already turned to the black market to cut their expenses.

Based on data published by the state of Minnesota, close to one in five of the 491 registered patients in Minnesota's medical marijuana program haven't returned to buy medication after purchasing product in the previous month. To be clear, there are plenty of reasons why this figure could be as high as it is, and a shift to black market marijuana may not account for the entirety of the drop-off.

Source: Flickr user Cannabis Culture.

Still, the data would suggest that black market prices are clearly enticing some medical marijuana patients in Minnesota. For instance, a small vial of marijuana extract runs about double in Minnesota ($130) than what it does in Colorado, a state where medical marijuana has been sold legally for more than a decade and recreational marijuana is also legal.

Furthermore, in an interview with the AP, Patrick McClellan, a resident with muscular dystrophy, noted it costs him $264 a month for the marijuana oil for vaporizer pens. By contrast, McClellan points out that he could get a month's worth of marijuana buds on the black market for about $80 and can then mix it with as much state-approved medicine as he can afford to lower his costs and still get a similar symptom-relieving result. In total, five Minnesota residents told the AP that they've turned to the black market primarily because of cost.

Of course, Star Tribune points out that there are factors specific to Minnesota that are pumping up medical marijuana product costs. For example, leaf products aren't allowed, the range of approved indications is minimal, and oils and pills are the only means of delivery, and they cost more than leaf marijuana.

Stopping black market sales may be impossible Ultimately, Minnesota's problems highlight how problematic it could be for the medical marijuana industry toovercome the black market.

Source: Flickr user David Shankbone.

The biggest obstacle for the legal marijuana industry when combating black market growers is price. In order for marijuana prices to fall to levels that could be construed as competitive with the black market, marijuana growers have to be able to get a stranglehold on consumer demand, and the consumer market has to expand to substantial levels (not just a few hundred, as in Minnesota) where multiple growers and shops can enter the picture and create a competitive market atmosphere.

What's preventing this from happening? I'd suggest it's a combination of every obstacle mentioned above. Minimal access to basic banking services restricts the ability of legal medical marijuana businesses to expand, or in some cases, even buy their product in bulk in order to get a lower price. Restrictive federal tax laws, which don't afford legal marijuana businesses deductions on their taxes, curb the profitability of legal marijuana businesses, denying many of them the ability to potentially lower their prices. And finally, constrictive federal (and in some cases state) regulations keep the eligible patient population from expanding to large enough levels where lower prices and increased competition are possible.

Long story short, until medical marijuana is addressed on a federal level and either legalized or decriminalized, it's going to be veritably impossible for legal stores to compete with black market growers. These black market sales are likely going to continue to eat into the profitability of legal marijuana shops and could be a roadblock the industry struggles to overcome.

In my opinion, you can chalk up the enormous marijuana black market in the U.S. as just another reason your investment money and marijuana stocks simply shouldn't mix.

The article Say Hello to Medical Marijuana's Biggest Threat originally appeared on

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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