Barriers to entry present benefits, risks for marijuana investors

Because of the rapidly evolving legal and regulatory environment at the federal and state levels, barriers to entry play a huge factor in the cannabis industry.

Regulations can control the number and size of cultivation operations, limit the number of retail outlets, control where firms can or can’t operate and decree how vertically integrated a firm can or must be.

High barriers to entry can lead to:

  • Lower competitive conflict.
  • Less competitor entry and exit from the sector.
  • Pricing power.
  • Higher profit margins.
  • Lower ongoing capital-expenditure requirements.
  • Myriad other factors that are key to defining the risk and opportunity of an investment.

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One comment on “Barriers to entry present benefits, risks for marijuana investors
  1. Pat on

    High barriers to entry can lead to:

    * “Lower competitive conflict.” Lower competitive conflict between what parties? This largely means the richest of the rich don’t want the competition from the thousands of mom/pop shops that can’t get “back in” the market ( in ca. esp. ). A lot of these people were the originals that took all the initial risk, and got screwed by the bigger guys, utilizing the govt. to “make law” that looks like it was promulgated by the majority of the citizens for the same. This kind of high barrier is a goes against a free market economy. It becomes more of a corrupted, non-evidence based regulated market economy. Which is undemocratic, and really doesn’t follow any capitalistic model. Or even a socialistic one.

    * “Less competitor entry and exit from the sector.” Yeah. When you have the aforementioned happening, this is usually the result.

    * “Pricing power.” I guess this means, the less the supply, the higher the price. This notion follows the previous two.

    * “Higher profit margins.” Yes. If the previous three notions are in play.

    * “Lower ongoing capital-expenditure requirements.” No necessarily true. The variable is the govt. and the laws/regs it promulgates/passes.

    * “Myriad other factors that are key to defining the risk and opportunity of an investment.” Well, this last one takes the heat off completely for what this author wrote. What I take this to mean is: Hey man, anything goes!! Good luck with that one!

    Reply

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