Markets
California Cannabis: A Golden Opportunity With Unique Challenges
If the state of California were a country, it would have the fifth largest GDP in the world.
Take this kind of spending power and combine it with the recent legalization of recreational cannabis, and it’s fair to say that the Golden State is primed to become the Holy Grail of cannabis opportunities.
But while the market is home to immense potential, this doesn’t mean that the California cannabis business isn’t without its own unique challenges and obstacles to navigate.
Navigating California Cannabis
Today’s infographic comes to us from High Hampton Holdings and it helps set the stage for the boom in California, as well as listing the regulatory hurdles that companies must be prepared to deal with in the jurisdiction.
In the next year, it’s expected that recreational cannabis sales in California will surpass the existing total from the already established medical market.
By 2025, those recreational sales could be $4 billion per year – that’s five times the size of the medical market!
Sticker Shock
The potential of the California cannabis market may be obvious, but navigating both the state’s notorious regulatory system and tax regime is a clear threat for companies aiming to succeed in the space.
Since legalization, the price of cannabis in California has become an immediate hiccup that has initially angered consumers, reducing expected demand and state revenues.
According to BDS Analytics, the effective sales tax on a gram of cannabis bought in San Jose works out to a hefty 38%. Add this to the higher cost of doing business in the state, and the sticker shock for consumers is real.
Complex Legislation
After high taxes, companies entering the California market must also navigate the state’s complex rules and regulations about growing, distributing, and selling cannabis.
To give an idea of what this looks like for the average company, here is a brief snapshot of California’s regulatory environment:
- There are three governing bodies for cannabis in the state: California Department of Food and Agriculture (CDFA), California Department of Public Health (CDPH), and the Bureau of Cannabis Control (BCC)
- There is a dual licensing requirement in the state, in which companies must be licensed both by the state as well as by local authorities
- Companies must get their local license before their state license – and this is complicated: there are 58 counties and 482 incorporated cities, each with their own specific set of rules and requirements
- Currently, many growers do not meet state or local standards
- The supply of zoned, permitted areas for cannabis cultivation are scarce and in high demand
Even further, the rules around cultivating, distributing, and retailing all involve specific and highly-specialized licenses. For example, only those with a full-service distribution license can coordinate required third-party testing, ensure packaging reviews of products, and collect and remit cultivation excise taxes.
Golden Potential
Despite the challenges that exist in the California cannabis market, it is still the undisputed jewel in the crown of the global legal cannabis space, offering access to 39 million consumers and large amounts of disposable income at play.
Only companies that can navigate this uncharted territory will be able to take advantage of this lucrative opportunity.
Markets
How the Top Cryptocurrencies Performed in 2021
Cryptocurrencies had a breakout year in 2021, providing plenty of volatility and strong returns across crypto’s various sectors.
Energy
The Periodic Table of Commodity Returns (2012-2021)
Energy fuels led the way as commodity prices surged in 2021, with only precious metals providing negative returns.
The Periodic Table of Commodity Returns (2022 Edition)
For investors, 2021 was a year in which nearly every asset class finished in the green, with commodities providing some of the best returns.
The S&P Goldman Sachs Commodity Index (GSCI) was the third best-performing asset class in 2021, returning 37.1% and beating out real estate and all major equity indices.
This graphic from U.S. Global Investors tracks individual commodity returns over the past decade, ranking them based on their individual performance each year.
Commodity Prices Surge in 2021
After a strong performance from commodities (metals especially) in the year prior, 2021 was all about energy commodities.
The top three performers for 2021 were energy fuels, with coal providing the single best annual return of any commodity over the past 10 years at 160.6%. According to U.S. Global Investors, coal was also the least volatile commodity of 2021, meaning investors had a smooth ride as the fossil fuel surged in price.
| Commodity | 2021 Returns |
|---|---|
| Coal | 160.61% |
| Crude Oil | 55.01% |
| Gas | 46.91% |
| Aluminum | 42.18% |
| Zinc | 31.53% |
| Nickel | 26.14% |
| Copper | 25.70% |
| Corn | 22.57% |
| Wheat | 20.34% |
| Lead | 18.32% |
| Gold | -3.64% |
| Platinum | -9.64% |
| Silver | -11.72% |
| Palladium | -22.21% |
Source: U.S. Global Investors
The only commodities in the red this year were precious metals, which failed to stay positive despite rising inflation across goods and asset prices. Gold and silver had returns of -3.6% and -11.7% respectively, with platinum returning -9.6% and palladium, the worst performing commodity of 2021, at -22.2%.
Aside from the precious metals, every other commodity managed double-digit positive returns, with four commodities (crude oil, coal, aluminum, and wheat) having their best single-year performances of the past decade.
Energy Commodities Outperform as the World Reopens
The partial resumption of travel and the reopening of businesses in 2021 were both powerful catalysts that fueled the price rise of energy commodities.
After crude oil’s dip into negative prices in April 2020, black gold had a strong comeback in 2021 as it returned 55.01% while being the most volatile commodity of the year.
Natural gas prices also rose significantly (46.91%), with the UK and Europe’s natural gas prices rising even more as supply constraints came up against the winter demand surge.
Despite being the second worst performer of 2020 with the clean energy transition on the horizon, coal was 2021’s best commodity.
High electricity demand saw coal return in style, especially in China which accounts for one-third of global coal consumption.
Base Metals Beat out Precious Metals
2021 was a tale of two metals, as precious metals and base metals had opposing returns.
Copper, nickel, zinc, aluminum, and lead, all essential for the clean energy transition, kept up last year’s positive returns as the EV batteries and renewable energy technologies caught investors’ attention.
Demand for these energy metals looks set to continue in 2022, with Tesla having already signed a $1.5 billion deal for 75,000 tonnes of nickel with Talon Metals.
On the other end of the spectrum, precious metals simply sunk like a rock last year.
Investors turned to equities, real estate, and even cryptocurrencies to preserve and grow their investments, rather than the traditionally favorable gold (-3.64%) and silver (-11.72%). Platinum and palladium also lagged behind other commodities, only returning -9.64% and -22.21% respectively.
Grains Bring Steady Gains
In a year of over and underperformers, grains kept up their steady track record and notched their fifth year in a row of positive returns.
Both corn and wheat provided double-digit returns, with corn reaching eight-year highs and wheat reaching prices not seen in over nine years. Overall, these two grains followed 2021’s trend of increasing food prices, as the UN Food and Agriculture Organization’s food price index reached a 10-year high, rising by 17.8% over the course of the year.
As inflation across commodities, assets, and consumer goods surged in 2021, investors will now be keeping a sharp eye for a pullback in 2022. We’ll have to wait and see whether or not the Fed’s plans to increase rates and taper asset purchases will manage to provide price stability in commodities.
-
Misc1 week agoFrom Greek to Latin: Visualizing the Evolution of the Alphabet
-
Best of3 weeks agoOur Top 21 Visualizations of 2021
-
Markets2 weeks agoPrediction Consensus: What the Experts See Coming in 2022
-
Technology2 weeks agoCompanies Gone Public in 2021: Visualizing IPO Valuations
-
Technology2 days agoThe 20 Internet Giants That Rule the Web
-
Misc3 weeks agoMapped: Top Trending Searches of 2021 in Every U.S. State
-
Green3 weeks agoMapped: 30 Years of Deforestation and Forest Growth, by Country
-
Markets2 weeks agoHow Every Asset Class, Currency, and S&P 500 Sector Performed in 2021