Legal Pot Starts Pulling Its Retail Weight

Trends in legal cannabis retail are just now emerging, and fresh numbers from Colorado are providing insight into how the industry is evolving.

According to a report from CNBC, Colorado, the first to make recreational pot legal, has hit a milestone: It has “surpassed $1 billion in total cannabis-related revenue, the first state in the country to hit that milestone. Companies also have made more than $6.5 billion in sales over the last five years, with April and May of this year the highest-grossing months since legalization.”

Other figures also point to how much consumers are spending on legal retail pot. According to the report, “per-person sales are also highest in Colorado, with people buying, on average, $280 worth of cannabis per year compared to $220 and $130 for Washington and Oregon, respectively, the second and third states to legalize weed, according to Scott Willis, head of research at Grizzle, a New York-based investment research company.”

The report said Colorado “had 2,917 licensed marijuana businesses and 41,076 individuals licensed to work in the industry as of June.”

Payments Progress

Legal retail cannabis may be spreading throughout the U.S., but there remains a significant problem concerning payments. Federal law still considers the drug illegal. As a result, banks, credit unions and payment card networks are hesitant to participate.

That said, in a first-ever congressional hearing on marijuana law reform, the House Judiciary Subcommittee on Crime, Terrorism and Homeland Security convened July 10 to debate altering federal law around cannabis.

The consensus is that major cannabis reform is needed but disagreement still remains over what legislation should look like and the best strategy to advance it.

“Marijuana decriminalization may be one of the very few issues upon which bipartisan agreement can still be reached in this session,” said Rep. Tom McClintock, R-Calif.

The congressional hearing marks a significant development in the marijuana reform movement. Lawmakers went on the assumption that reforming federal marijuana laws is a given and used the hearing to discuss regulation.

Proposals introduced this session ranged from legislation allowing states to set their own policies to bills that would fully deschedule cannabis and include social equity provisions.

One of the biggest arguments in favor of federal legalization of marijuana is the opportunity for regulation to pull an industry off the black market, and into the world of compliance and transparency — ultimately promoting consumer safety. Proponents of legalization have said consumers are using marijuana products for recreational and medicinal purposes, whether it’s legal or not. State and federal regulation can ensure that those consumers are using safe products.

With many in the industry anticipating federal-level legalization of the cannabis market, the sector remains with one foot in state-level regulation and one foot in the shadow market. Though regulation may pull it out of the shadows, Kerin Law, chief scientific officer at plant genetics company LeafWorks, said product fraud still runs rampant in the legal cannabis market.

“Fraud, in the herbal world, is a very common occurrence,” she told PYMNTS in a recent interview. “Whenever you have a lot of money to make, people will always try to cut corners. In this case, they may add less valuable plant material into a product as bulk or filler.”

That fraud doesn’t stop just because a product is legalized, either. Indeed, a legal cannabis product may receive significant hype and demand, further enticing manufacturers and sellers to be less than genuine with the products their labels claim to be selling.

This is the pain point that LeafWorks aims to address with its recently announced Supply Chain Certification solution. The company uses plant DNA validation technology to track a product as it moves throughout the supply chain, and ensure that, whenever it changes hands, the quality and characteristics of that product remain the same.

By looking at product verification and compliance practices within federally regulated markets, LeafWorks is able to identify key checkpoints throughout the supply chain that provide the biggest window of opportunity for fraudsters. Industry companies may have their own in-house product testing tools, but third-party verification is essential for transparency, said Law.

For consumers, that means being able to trust that they’re consuming what the product packaging claims. However, as Law explained, consumer trust isn’t the only benefit to supply chain verification in this sector. As supply chain certification becomes “a necessary aspect of our industry,” she said, compliance pressures on retailers and their vendors will continue to grow.

As Colorado is showing, the legal pot industry continues to grow.