Cannabis Industry as 2015 Startup Opportunity: Economic Analysis

Introduction

The economic article chosen for this paper is from Forbes and takes a position that would have been considered controversial, even outrageous, just a few years ago. The writer asserts that marijuana is the "best start-up opportunity" for entrepreneurs in 2015. This paper presents a review and critique of the article, examining how marijuana can become a significant boost to state economies as legalization spreads across the country. According to the article, many states will benefit economically from developing this emerging industry.

Why Legal Cannabis Is 2015's Best Startup Opportunity

Journalist Carol Tice, who covers entrepreneurship and startups for Forbes, explains that helping develop the legal marijuana industry is a smart way to launch a business in 2015. At the time of her writing, twenty-three states had legalized marijuana for medical purposes, meaning that with a doctor's prescription (and a state ID in many cases) a person could legally purchase small amounts. While buying marijuana was legal only in two states at that time—Colorado and Washington State—two other states (Alaska and Oregon) were preparing to legalize marijuana for recreational sale later in 2015. Alaska's new law would go into effect in February of that year, Tice notes.

"It's just a matter of time before more states get on the bandwagon," Tice explains, and that spread of legalization will "open up huge new markets." Startups launched in 2015 would be positioned to profit from this new demand on the horizon. She does not, however, explain how a startup in a state where marijuana is illegal would be able to grow cannabis in anticipation of being able to sell large quantities in legalized states—a logical gap in her argument.

Tice positions legal cannabis as a rare ground-floor opportunity, comparing it to the early days of the Internet. She cites market data showing that the previous year had generated $1.6 billion to $1.9 billion in legal medical marijuana sales, with an additional $600 to $700 million in recreational sales in Colorado. Over the next three years, she projects that cannabis business revenue will reach $8 billion. This growth would provide a significant boost to state economies and generate substantial tax revenue for governments.

Startup Costs and Profitability Analysis

Tice provides detailed financial data on startup costs for cannabis businesses. According to her research, one-third of marijuana wholesalers spent less than $50,000 to launch; approximately 14 percent spent between $50,000 and $100,000; 24 percent spent between $100,000 and $500,000; and 29 percent invested over $500,000. This range of startup costs makes entry into the market feasible for entrepreneurs with varying levels of capital.

The profitability outlook appears encouraging. Of the startups Tice researched, 16 percent are "very profitable"; about 38 percent are "modestly profitable"; 28 percent are breaking even; 15 percent are experiencing financial losses; and only 3 percent report "significant losses." This data suggests that the majority of cannabis businesses achieve at least modest profitability, making the sector attractive to new entrepreneurs. Notably, Tice points out that just a few years before 2015, "most investors wouldn't go near this sector," but attitudes had shifted as the market's potential became apparent. Several startups had already raised a million dollars or more in funding.