You’ve got to hand it to ’em: California lawmakers definitely set their sights high when they legislated for full “adult use” cannabis legalization in the Golden State.
In essence, they aimed high… and went a little wide of the mark. Or, more to the point, shot themselves in the foot. Those same legislators – and bureaucrats – have mucked up the implementation of full adult-use legalization.
So the phenomenon I call “California 2.0,” the second, even bigger wave of Golden State cannabis profits, won’t be long in coming.
Where Well-Intentioned Laws Went Badly Awry
One crucial mistake Sacramento made was leaving it up to California’s 58 counties and 482 incorporated cities and towns to determine what kinds of cannabis business activities they’d allow in their jurisdictions.
It probably seemed like a good, democratic idea at the time – leave it up to the locals – but the reality is an ungainly, largely unnavigable patchwork of regulations.
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For instance, a municipality may allow licensed cannabis businesses within its incorporated limits… but then the surrounding county could prohibit businesses in the unincorporated regions.
So laws can change at city limits. Law-abiding, paying customers in one area essentially become fugitive desperadoes when they tote their purchases, say, a quarter-mile up the road.
Functionally, what this means is cannabis prohibition is still in effect in something like two-thirds of California’s territory.
Not great for business.
And we’re seeing that play out in an uptick in California’s vast black market for marijuana. It’s not hard to figure out: Rather than deal with some crazy jigsaw puzzle of regulations, many customers went back to their old dealers!
Another misstep: The government went overboard on taxation. In some parts of California, state, local, and excise taxes could exceed 40%. That’s a major disincentive to buying legally – and a major incentive for any user who’s able to either buy on the black market… or hop across the state line to avail themselves of Nevada’s thriving (and reasonably taxed) adult-use market.
At the end of the day, bad, byzantine laws like California’s take and keep revenue out of legitimate business coffers – and, by extension, investor stock-trading accounts.
But there’s a game changer at work right now, one that could drive California cannabis revenue higher by 50%.
A look at the big picture really underscores how promising this development is.
Repairing the Damage of the “War on Drugs”
One of the most important social benefits of cannabis legalization is increased opportunity, the chance for more people to benefit from the birth of an industry…
… people who’ve been disproportionately impacted by decades of bad policy.
And it was bad; that the “War on Drugs” has been a complete failure is a subject of broad bipartisan agreement.
In an effort to put things right while increasing revenue, Weedmaps – an online directory that connects its users with marijuana dispensaries – has allowed illegal or unlicensed operators to advertise. Its position has been that government restrictions and scarce capital have made it “nearly impossible to participate in the legal market.”
But last week, the company announced that later this year, it would no longer allow unlicensed dispensaries on its platform.
Without an easy way to access customers, black-market operators will not draw nearly the same amount of business; some estimates say half the black market will wither away.
Instead, the company will support unlicensed businesses in their efforts to become licensed. For instance, Weedmaps will train owners on compliance with the regulations, show them how to get licensed, and provide professional support.
To sweeten the deal, once a business gets a license, it can advertise on the site for free for up to one year.
With the end of this support for black market sales, legal cannabis businesses operating in California can expect a surge in revenue.
And this is especially true for businesses like Origin House (OTCMKTS: ORHOF), the former CannaRoyalty.
A Potent Shot in the Arm of the Legal Market
Back in April, Origin House was acquired by Cresco Labs Inc. (OTCMKTS: CRLBF), though the transaction has yet to close.
And central to Origin House’s California-focused strategy is owning distribution assets.
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In California, all sales of cannabis products must go through licensed distributors. These distributors are private companies and serve several roles. For example, only distributors can transport marijuana products. They are responsible for all quality assurance packaging and labeling of their products, and they collect all cannabis taxes for the state.
Distributor licensees touch all legal cannabis products sold in the state. This makes them a “toll booth” in the California cannabis market.
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By acquiring key distribution licensees to support a large brand portfolio, Origin House will be well positioned to address the fragmented and chaotic California cannabis market with a comprehensive and professionally run structure.
And the sharp policy shift from Weedmaps will force even more revenue through Origin House’s cannabis tollbooth. Investors, keeping their goals and risk tolerance in mind, would do well to own Origin House before the surge that “California 2.0” will bring.
Famous Angel Investor Shares His “1,000x Formula” for Finding Unicorn Startups
Neil Patel is one of the most successful angel investors on the planet.
Today, he’s walking everyone through his “1,000x formula” for finding the most successful startup investments – the ones with unicorn potential.
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