Would Amazon Ever Sell Marijuana

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Photo Credit: Amazon

There aren’t too many industries in this world growing as quickly or as consistently as legal marijuana, and investors have taken notice. ArcView, a leading cannabis research firm, is projecting a compound annual growth rate in legal sales of 26% for North America between 2016 and 2021. If accurate, this would lead to almost $22 billion in sales by 2021.

Meanwhile, Cowen & Co. has taken an even more aggressive stance by predicting $50 billion in U.S. legal weed sales by 2026. Such an estimate would suggest that, at some point between now and 2026, the federal government will completely legalize pot.

It’s also gaining a lot of support with the public. Gallup, which has been conducting cannabis polls since 1969, found in October 2017 that 64% of U.S. respondents want marijuana to be legal. That’s the highest percentage on record. A separate poll in August 2017 from the independent Quinnipiac University found that a whopping 94% approved of the idea of legalizing medical cannabis. Meanwhile, a meager 4% opposed the idea.

For the time being, however, marijuana remains most definitely illegal at the federal level in the United States. Currently a schedule I drug, cannabis is defined as being highly prone to abuse and having no recognized medical benefits. It’s essentially on par with heroin, cocaine, LSD, and a host of other illegal narcotics.

Would the king of online retail ever sell marijuana?

This creates quite the dilemma for U.S.-based businesses. Do they or do they not jump into a rapidly growing industry that’s illegal in most countries around the world? It does make this investor wonder, though, whether or not Amazon.com (NASDAQ:AMZN), the king of online retail, would ever sell marijuana.

To be crystal clear, Amazon’s management team hasn’t ever discussed the possibility of selling marijuana for medicinal or recreational purposes. Any discussion here is mere speculation on my part. Still, I could see a slim-to-growing possibility that Amazon could, within the next three-to-five years, begin selling cannabis-use paraphernalia, oils, and dried cannabis.

If you had asked me a year ago whether Amazon would enter the cannabis market, my answer would have been virtually 100% “no.” However, two key changes have me rethinking Amazon’s retail future as it relates to the marijuana industry.

Canada’s expected legalization opens new doors and questions

First, we have the expectation that Canada will become only the second country in the world, and the first developed country, to legalize recreational pot by this coming summer. Legislation introduced by Prime Minister Justin Trudeau in April 2017 is designed to allow adults to purchase dried cannabis legally. With Canada’s parliament controlled by progressive party members and a two-year tax-sharing agreement in place with all of the country’s provinces, legalization is looking more like a forgone conclusion. I doubt Amazon would ever consider selling or shipping a product that’s illegal, meaning a shift in federal law in Canada could clear the way for it to begin selling recreational weed.

However, such a move would create three very big challenges that the company would have to overcome. First, home delivery would be challenged by confirming the recipient of the goods. Canadian law is very clear that cannabis needs to stay out of the hands of adolescents. It could be difficult for Amazon or regulators to get a system in place to ensure that underage consumers aren’t purchasing pot products from its online store for delivery.

Secondly, traditional logistics companies don’t want anything to do with transporting drugs that are fully or partially illegal. This pretty much means that it could be difficult to convince UPS and FedEx to transport marijuana. However, with Amazon looking to take on these logistic giants at their own game, it may not be such a big deal after all.

Finally, and building on the previous point, there’s the issue of shipping to consumers. Amazon has around a half-dozen distribution centers in Canada, but it occasionally uses its U.S. centers for fulfillment purposes when shipping to Canada. With pot still wholly illegal in the U.S., this doesn’t seem like a viable option. In other words, we likely would need to see significant distribution-capacity expansion in Canada for this to become a reality.

Amazon’s pharmacy push could one day include cannabis

The second exciting development is Amazon’s push into the pharmacy industry. According to CNBC this past May, Amazon has met once annually for years to discuss its possible entrance into the high-revenue, low-margin, pharmacy business — but it hadn’t taken the plunge. Over the past couple of quarters, however, it’s changed its tune.

Last year, Amazon announced a $13.7 billion acquisition of natural grocer Whole Foods Market. This buyout, which had some investors scratching their heads at first, gives Amazon an immediate brick-and-mortar presence to begin offering prescription medicines, should it choose to do so.

Even more recently, in late January, Amazon, Berkshire Hathaway, and JPMorgan Chase announced a partnership that’ll launch an independent operation capable of providing health-care benefits on a non-profit basis. In doing so, this consortium, which employs 1.1 million people, believes it can save a lot on healthcare costs.

It’s also worth pointing out that Amazon has been selling pharmaceutical products to patients in Japan, as long as those patients have an approval from a pharmacist. In short, expanding into medical marijuana in legalized countries wouldn’t be too much of a stretch.

Of course, there are two big concerns that would need to be addressed. First of all, as noted earlier, there would need to be tight regulation with regard to who could fill a prescription.

The second issue is that Amazon likely would need to jump through a lot of hoops to get pharmacy licenses in whatever markets it decides to operate in. The U.S. very likely won’t be one of those markets, at least until Attorney General Jeff Sessions is no longer in office.

It’s a possibility, but probably outside the U.S.

In summary, I do believe the marijuana industry is becoming too big of a market for Amazon to ignore. However, I don’t believe the U.S. will be its first choice if it enters the cannabis marketplace. Assuming Canada moves forward with full legalization by this summer, investors should pay attention to Amazon’s commentary toward Canada and its allocation of resources toward its Canadian distribution centers. That could give us clues as to whether or not Amazon would ever sell marijuana.

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