California and Pot

12 Oct, 2017

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California state is all set to legalize the trading of marijuana from 2018. The news of such a happening has already lead to an economic upswing in the Golden State. Private investors from all over the United States are lining up to take advantage of such an invaluable opportunity associated with the Cannabis use legalization in the world's sixth biggest market.

Taking advantage

According to Caroline Basile of HousingWire, banks are taking advantage of the recent changes to serve the highly profitable marijuana businesses. About 29 states have now made marijuana legal in few forms. This could be either recreational or medical or both. Billions of dollars get generated through sales. Such high profits mean banks could benefit from it. The financial institutions, however, are stymied by complex federal laws and inexpert guidance through the legal maze.

Industry experts believe that the legal cannabis market could grow by 18.5 percent compounded annual rate from 2015's $2.76 billion to $6.5 billion by 2020. These numbers do not include the benefits in the form of benefits from real estate and technology development. There are also a number of additional benefits from the empirical economic impact from the sale of cannabis.

Big fish

The profits from marijuana have even attracted the likes of Goldman Sachs. In its email to clients, it said that the economic impact of the plant product would lead to a slash of personal and corporate income tax of about one trillion US dollars over a period of 10 years. It is apparent that the outlook is good, but not great. The tax package in medium-term increases the GDP level by about 0.5 percent. The unemployment rate is lowered anywhere between 0.1 and 0.2 percentage points. It adds less than about 0.1 percentage to the fundamental inflation level. The federal rates are raised up by an excess of 25 basis points.

Analysts at Goldman Sachs conclude the report by saying that although these numbers are not substantial, they strengthen the conviction that the labor market in the United States will overheat in moderation. The report also stated that the fund rate will go up much more than implied by the pricing of the current bond market. The problem is that there is a lot of uncertainties associated with it. Risks around the fiscal assumptions continue to be significant. There is a possibility that the cut in taxes, as stated in Senate budget resolution, could lead to doubling of the GDP.

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