The U.S. cannabis industry could reach $35 billion in size by 2020, if all 50 states legalized marijuana and the federal government ended prohibition, according to GreenWave Advisors, while potentially helping to increase tax revenue, eliminate a key source of revenue for criminals, and reduce the number of people incarcerated for non-violent crimes. Early successes in Colorado and Washington State have bolstered these arguments.
Those opposing the legalization of marijuana on a federal level base their arguments largely on the assumption that marijuana use among youths would rise. While that may seem logical on the surface, a new study has shown that the opposite has occurred among adolescents over the past ten years. Regulators should instead be focused on the real problems – tainted products and a lack of testing standards to guide the industry.
Users Aren’t the Problem
University of Texas at Austin researchers found that the proportion of adolescents reporting marijuana use has decreased and a greater number of younger adolescents disapprove of marijuana use initiation over the past 11 years in a newly released study published in The American Journal of Drug and Alcohol Abuse. These results are particularly interesting given regulator concerns that marijuana use would spike in states where it has been legalized.
“Our results may suggest that recent changes in public policy, including the decriminalization, medicalization and legalization of marijuana in cities and states across the country, have not resulted in more use or greater approval of marijuana among younger adolescents,” said UT Austin Social Work Professor Christopher Salas-Wright, who led the study.
The study found that young adolescents aged 12 to 14 had a “strong disapproval” of marijuana that ranged from 74.4% to 78.9% with a solid reduction in use between 2002 and 2013. While older adolescents aged 15 to 17 didn’t necessarily disapprove of marijuana use any more than they did before, there was a significant drop in use rates from 26.2% to 21.9%. These trends came despite widespread legalization in several states.
Interestingly, adults aged 18 to 25 saw a substantial decrease in the disapproval of marijuana, from 40.5% to 22.6%, but the number of marijuana users in the age group increased by just 2% over the 11-year period. These dynamics suggest that marijuana is no longer seen as a danger among legal users, while the number of users hasn’t significantly increased, as many opponents to marijuana legalization fear will occur.
Testing is the Real Problem
Opponents to the legalization of marijuana on a federal level may actually be creating a very real problem by believing in a fake problem. While the number of underage cannabis users hasn’t surged as predicted, those using the substance legally are putting themselves in a very real danger in the form of unregulated products. A growing number of cannabis and edibles have been found to be tainted due to a lack of cohesive testing standards and regulations.
The Oregonian’s Noelle Crombie published a scathing critique of the cannabis industry’s lack of testing standards in June, which has helped shed light on the industry’s most troublesome problem. In her investigation, Ms. Crombie found that samples obtained from dispensary shelves contained 14 chemicals, including a half-dozen chemicals that the federal government believes may cause cancer and a banned household roach killer.
Johns Hopkins researchers also found that the vast majority of edible cannabis products sold in a sample of medical marijuana dispensaries carried labels that overstated or understated the amount of THC. Of course, the under-labeling of THC content could be very dangerous for patients, since it increases the risk of an overdose. The team also discovered a lack of CBDs in products that were advertised to have high amounts of the beneficial substance.
These problems could be easily solved with a cohesive federal framework in place with oversight from regulatory bodies like the FDA and the Department of Agriculture. Instead, marijuana’s status as a Schedule I Controlled Substance has blocked these agencies from instituting much-needed rules to protect consumers, while regulators remain focused on problems that are being continuously disproven by research.
Investing in the Answer
GreenWave Advisors’ Matthew Karnes believes that cannabis testing represents the most attractive subsector of the cannabis industry, given the necessity of testing over the coming years, high barriers to entry, exceptional gross margins, and predictable recurring revenues. With north of five million pounds of marijuana requiring testing by 2020, the analyst predicts that the market could reach $565 million in testing revenue and $850 million with other services added.
DigiPath Inc.’s (OTCQB: DIGP) DigiPath Labs subsidiary aims to capitalize on these trends with an initial cannabis testing lab open in Las Vegas, Nevada and additional locations planned in other states. As one of the few publicly traded companies in the cannabis testing space, investors may want to take a close look at the stock for exposure to the industry without the risks associated with operating dispensaries or other investments.
Cannabis testing may provide a much greater opportunity in terms of growth potential than other lab testing companies, including Greenscape Laboratories Inc.’s (OTC: MJLB) focus on testing imports for foreign substances, NuOncology Labs Inc.’s (OTC: NLAB) focus on running testing facilities for oncology, or National Technical Systems Inc.’s (NASDAQ: NTSC) testing on a wide range of systems engineering markets.
To learn more, visit the company’s website at www.digipathlabs.com.
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