When 2018 comes to a close, it may very well be the biggest year in history for the cannabis industry.
Sure, California passing the first medical cannabis law in 1996 was pretty big, as was Uruguay becoming the first country in the world to fully legalize pot back in late 2013. But in 2018 we'll have witnessed Canada become the first industrialized country in the world to have legalized recreational weed, as well as watched two major Canadian marijuana stocks -- Canopy Growth Corporation and Cronos Group -- uplist to a major U.S. exchange from the over-the-counter exchange. And as icing on the cake, Vermont became the first U.S. state to OK recreational cannabis use entirely through the legislative process.
The legalization of adult-use cannabis in Canada is an especially big deal. Marijuana growers had been expanding their capacity at a breakneck pace in anticipation of the Cannabis Act passing, which it finally did on June 19. By Oct. 17, weed will officially be legal for adult purchase, opening the door to what could be a $5 billion windfall once the industry is fully ramped up (which could take a few years).
On an even broader basis, an analysis released by European investment bank Bryan, Garnier & Co., courtesy of Marijuana Business Daily, estimates that the global cannabis market could be worth $140 billion by 2027. That represents growth of more than 1,000% over the next decade.
Make way for Amazon?
With such big dollar signs being tossed around, the question most folks have been asking, including Wall Street professionals, is what industry might want to dip its toes into the water? Will it be more spirit manufacturers following in the footsteps of Constellation Brands, or could Big Tobacco look to turn around ailing sales by partnering or investing in marijuana businesses? Or, dare I say, will e-commerce giant Amazon.com (NASDAQ:AMZN) get wind of the marijuana industry's potential and look to nab its slice of the pie?
According to a recent Yahoo! Finance interview, the CEO of cannabis delivery company Eaze believes that Amazon will eventually get its foot in the door of this budding industry. According to Jim Patterson:
I think there's no doubt that eventually Amazon will get into this business. The question is, is that five years, 10 years, or 20 years? I think it will be a bit longer for them... until there's much more clarity at the federal level [in the U.S.].
Eaze, which acts as a middleman technology service that allows consumers to choose their cannabis online for delivery and then directs deliveries from marijuana dispensaries closest to the consumer, is at the heart of what could be a $1 billion on-demand pot delivery industry by 2020. Given Amazon's ability to keep its customers loyal via Prime, as well as its superior logistics, it's not a preposterous idea that Amazon could one day become a marijuana middleman. In fact, yours truly suggested this very idea back in March.
Amazon's push into cannabis would be even more logical considering that it recently ponied up $1 billion to acquire PillPack.com, which allows it to bring prescription medicines to consumers quicker, and at a cheaper cost, than traditional pharmacies. Although this is a business that'll be focused on the cash consumer, it's not too far off the beaten path of what Amazon could be doing with cannabis.
Hurdles aplenty to contend with
Amazon certainly has the cash flow and consumer loyalty to consider a push into the cannabis industry, but a long list of uncertainties is likely to keep the retail kingpin from getting its hands on the green rush anytime soon.
As noted by Patterson, the legal ramifications in the U.S. are a pretty substantial drag. On one hand, the federal government, despite retaining its Schedule I classification -- i.e., it is entirely illegal, prone to abuse, and has no recognized medical benefits -- has kept a hands-off approach to state-level regulation.
Ultimately, however, we're talking about a drug that is illegal at the federal level. More so, if Amazon were to begin conducting interstate commerce of a Schedule I substance, Attorney General Jeff Sessions, an anti-cannabis advocate, might throw the book at the king of retail. Personally, I don't see much chance of reform at the federal level in the U.S. until at least the second half of 2020, meaning Amazon would almost certainly be constrained by U.S. federal law.
Another issue is logistics. While I did state above that Amazon's methods of getting product into the hands of consumers is superior to most retailers, what I failed to mention is that it leans on delivery giants UPS and FedEx to make this happen. Neither UPS nor FedEx wants anything to do with the cannabis industry at the moment. Even with Amazon setting its sights on launching its very own delivery service, the logistics of getting cannabis into the hands of consumers could prove challenging.
And speaking of delivery, another hurdle is ensuring that the product doesn't fall into unwanted hands. Possibly the biggest objection among lawmakers on Capitol Hill to legalizing cannabis is that it could more easily wind up in the hands of adolescents. Presumably, with Amazon simply dropping off packages on the doorsteps of members, and/or allowing anyone with an Amazon account to order products online, adolescents would have easier access to cannabis or cannabis-related products.
Lastly, even Amazon would have to contend with the black market. Even if Amazon finds a way to overcome the hurdles listed above, it still has overhead costs and taxes to contend with, which is not something the black market deals with. Luring consumers to legal channels in high-tax states (ahem, California and Washington) could prove challenging.
Look, we all know that Amazon is a disruptor. It certainly has the capital and name to make a splash in the marijuana industry. But given the sheer number of hurdles left to overcome, Patterson is probably correct in suggesting that Amazon's entrance into the weed industry is still many years out.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.