If you thought getting into the marijuana business meant starting a pot farm in Seattle or selling pot infused smoothies in Denver, think again.
That was so last year. The cannabis industry has sprung anew.
You see, once the marijuana industry began to boom in 2014 due to legalization in some states, there came about, like any traditional goods-based industry, a fresh crop of for-profit service and infrastructure businesses to support it.
Since then, a successful cannabis ecosystem of financial and other services has been growing like a weed.
A Budding Industry
Here are just a few examples from a plethora of success stories:
- Viridian Capital Advisors – a group of experienced Wall Street analysts and bankers that bring capital markets expertise, institutional research coverage, and strategic direction to the cannabis sector.
- Cannasure – one of the leading providers of insurance in the marijuana industry.
- Denver Relief Consulting – cultivates cannabis operations and progressive industry leaders committed to advancing the best practices to evolve and improve the cannabis industry.
- Canna Advisors – provides licenses applications and procurement for the cannabis industry. Plus they help with business development, facility design and construction, and marketing and operations, among other services.
- CanopyBoulder – a cannabis business accelerator, which is a mentorship-driven, seed-stage investment program for startups in the industry.
- Mantis – has a specialty Marijuana Marketing Platform and claims to be the largest cannabis-friendly ad network, reaching more than seven million monthly readers across over 135 publishing partners in the niche.
- Eaze – the Uber of pot, a marijuana delivery service that promises to help patients receive medical marijuana easily, quickly, and professionally.
- Leafly – a marijuana dot-com finder for strains and dispensaries.
- Aromask – an odor elimination system that helps to remove the lingering stale smell of marijuana.
Other hot trends in the industry include laboratories for product testing, as states are beginning to require product potency measurements and contaminant assurance. Data analysts that aggregate statistics throughout the entire supply chain are also a growing need, along with biotech firms working to discover strains of cannabinoid to help those diagnosed with diabetes, epilepsy, or glaucoma.
And, of course, there’s a growing need for specialists in brand building, public relations, law firms, and accountancies.
The demand for these new services and more will only grow as legalization spreads.
Here’s the Buzz
Marijuana is now legal for medical use in 23 states and Washington, D.C., with five other jurisdictions permitting recreational use. In 2016, voters in about six more states will consider legalization.
The legal cannabis industry expanded 74% in 2014 to reach $2.7 billion in combined retail and wholesale sales (up from $1.5 billion the year prior) and firmly established itself as the fastest-growing industry in America, according to the ArcView Group, a marijuana research and investment firm in San Francisco.
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A new trend in multistate licensing is pushing for strong national cannabis brands to find ways to emerge in a state-segmented market. And there’s a bi-partisan effort to remove federal restrictions on medical marijuana in the states where it’s already allowed.
Other positive developments include an Adult Use Initiative in California. Should the initiative pass next year, the entire industry could rapidly double in size, according to ArcView.
And in May, a federal bill was introduced that would shield banks from potential liability for serving legal marijuana businesses.
In the meantime, ArcView projects that full legalization of marijuana nationwide would result in $36.8 billion in retail sales, larger than the $33.1-billion organic foods market in the United States.
Get High on New Business
While many of these new startups are in the venture or private equity stage, a whole host of companies have already issued IPOs. In fact, today there are approximately 300 publicly traded companies in the cannabis industry, up from only 13 in 2013.
Perhaps the best thing that happened to the industry from an investment standpoint is when PayPal’s Co-Founder Peter Thiel (via his investment firm Founders Fund) made a multi-million-dollar investment in the private equity firm, Privateer Holdings, which has raised $82 million for its cannabis business.
Privateer is known for its Marley Naturals, a Jamaican “heirloom marijuana strain” that the late reggae star Bob Marley enjoyed. Marely’s family helped assist the firm to develop the eponymous brand.
Today there are a number of small financial firms – such as Poseidon Asset Management – that are raising money for the industry. Many high-net-worth individuals and family offices are investing in these firms as knowledge and awareness of the business of marijuana grows.
Weeding out the Talent
As for individual stocks to invest in, do your research and crunch the numbers. Look for top-tier management and sustainable business models.
To get an industry overview, check out MJIC, a marijuana index that tracks the performance of the industry, or the Viridian Cannabis Stock Index, which is comprised of 75 publicly traded cannabis companies categorized across 10 sectors.
When to Inhale
While there are many reasons to be bullish about the growth of the industry, as the smart money is now coming in, there are potential headwinds to keep an eye on.
Be on the lookout for fragmentation in the supply chain and the widening gap between campaign donations and opportunities to expand legalization. Most importantly, watch out for bad actors and pump-and-dump equity schemes.
Finally, there’s always the possibility of an anti-cannabis presidential candidate winning the 2016 election. Check out the National Cannabis Industry Association and the Cannabis Business Alliance, for industry news and developments.