Marijuana Commerce Blossoms, But Challenges Abound. Or this is so much better than scoring off a dealer!
As marijuana prohibition falls in one state after another, cannabis sales are shifting from street corners to storefronts as opportunists line up to cash in on what optimists say is the biggest investment opportunity since the dot-com boom of the turn of the century. Investors of all varieties are starting to look at marijuana as less of a stoner’s fad and more of a serious business venture. The industry totaled $2.66 billion in U.S. sales in 2014, up 74 percent from $1.53 billion the year before, according to the ArcView Group, a cannabis industry investment network.
Business insiders said they expect the market to expand to many times its present size as more states legalize marijuana for both medical and recreational use. Already the cannabis trade has not only brought in millions for dispensary owners and cultivators, it’s also created a thriving ancillary market, driven job growth and boosted property values, marijuana advocates claim.
Still, the challenges are many for the kind of high-risk, high-reward investment that cannabis calls for. No industry since post-Prohibition alcohol has come close to having had a harder time getting off the ground, from strict regulation and heavy taxation to a lack of investors and banking services. “A lot of people look at the cannabis industry and say, ‘Oh my God, it’s so much harder. (There are) so many barriers … You’ve got endless problems,'” said Troy Dayton, CEO of the ArcView Group. “Well, some people see endless problems. Other people see endless problems disappearing fairly soon and see this as a great investment.”
Dispensaries, cultivators not only ones making money
Jamie Perino, the CEO of Colorado-based Euflora dispensaries, said the three-store chain has so many customers that it wants to open more outlets, not only in Colorado but also across the country. Perino estimated that Euflora, dubbed the “Apple store” of pot for its tablets next to every product displaying information about potency, strains and more, brings in 2.5 million visitors a year at its 16th Street Mall location in downtown Denver.
Perino isn’t a marijuana enthusiast, but the financial opportunities were too good to pass up after Colorado became the first state to legalize recreational marijuana in 2012. Dispensaries began opening in 2014. After working in the building industry for 15 years, Perino made the switch. “There were CEOs, CFOs, from pharmacy, banking, real estate,” Perino said. “People were leaving their jobs to get into this industry, and I think that if they are getting into it, maybe they know something I should know. … It’s kind of being compared to the tech boom of several years ago and to be at the forefront of it is really exciting.”
Colorado alone brought in about $79 million from taxes and fees on the marijuana industry in fiscal year 2015. On the fringes, ancillary business also have found money-making niches to fulfill the needs of marijuana businesses. Cultivators need high-wattage lights to grow cannabis indoors. States have contracted seed-to-sale tracking systems to try and stop cannabis from slipping to the black market. Limousine companies shuttle paying customers from dispensary to dispensary.
As acceptance spreads, industry matures
When the ArcView Group first started hosting conferences to connect marijuana businesses with cautious early investors, the events reinforced quite a few stoner stereotypes, ArcView CEO Dayton said. He described a ragtag lot who cared more about smoking weed than making money off it. Many of the presenters looked uncomfortable in suits and ties and floundered through their pitches. ArcView events now draw a sharply dressed mix of professionals who whip through presentations with practiced precision – a reflection of the maturing industry, Dayton said.
As more states legalize, shifting social attitudes have opened the door for a host of white-collar professionals who once shied away at the mere mention of marijuana. Lawyers are leaving their corporate firms behind. Bankers are closing down their tills. Business is serious. Business is brisk. From Hawaii to New York, 23 states across the country, plus Washington, D.C., have approved marijuana for medical use, with Alaska, Colorado, Oregon, Washington state and Washington, D.C., legalizing recreational marijuana, as well.
The legalization tide has flooded the marijuana market with entrepreneurs who must distinguish themselves amid rising competition.
There are hookahs and bubblers, volcano vaporizers and percolated bongs. Consumers slurp down THC-infused ice cream and gnaw on gummy bears. They slather on lotions permeated with marijuana oil and dollop out droplets of tinctures, cannabis extracted with alcohol. The secondary market of ancillary businesses has filled the gap to meet a growing demand for the latest and greatest way to get high.
Although it can be difficult to get into the dispensary business – with steep initial investments and time-consuming licensing – those who try said the potential profit in a growing market makes the endeavor worth it. State licenses can be hard to come by, but once in hand, caps on dispensaries can limit competition and provide a big payday. Nearly two years ago, Illinois approved a medical cannabis pilot program. Dispensaries plan to open this year to serve the state’s 2,600 approved patients.
Brad Zerman, who plans to open one of the state’s 56 dispensaries, said he sees it as a smart business investment. “I’m an entrepreneur. I’ve had businesses since I was 23 years old,” Zerman said. “Everything about this business is difficult. You really just have to be up for a good challenge.”
Though social attitudes are leaning more in marijuana’s favor, the majority of traditional investors – who tend to be more conservative with their choices – have kept their caution. Boston-based Dutchess Capital, a global money manager of more than $2 billion in assets, moved into marijuana in 2012, one of the first companies to invest in the field.
Doug Leighton, managing partner at Dutchess, said it “took a very long time to get comfortable, given the federal government’s stance” on the Schedule 1 drug – a drug that has no medicinal benefits and can’t be legally bought and sold. It makes investors wary of potential federal prosecution. But the potential profits outweighed the risk. “We did our homework,” Leighton said. “But it’s weed. We’re not going to lose. How are we going to lose?”