Marijuana a tough deal for investors, but California vote could change that
With California voters poised to legalize marijuana this month, investors face a choice: jump into an industry whose tantalizing growth prospects are hamstrung by its criminal legacy or wait until federal- level banking and legal restrictions get resolved.
California for decades has been home to a thriving illegal marketplace for black- market cannabis, but a legalization vote Tuesday could dramatically alter the landscape. A state- taxed marijuana marketplace in California could generate $ 1 billion in taxes, experts say. That’s money that today vanishes into the pockets of black marketers and smugglers. Polls show the measure with significant public support.
“I really believe California really is a watershed moment for this industry,” said Adam Bierman, co- founder of the national cannabis firm MedMen. The company offers consulting and management services to the marijuana industry, and Bierman oversees the MedMen Opportunity Fund, a $ 100 million private equity fund focused on cannabis ventures.
Nationally, legal pot initiatives could spell a three- fold expansion in legal cannabis in the U. S.
The marijuana industry is expected to grow at a compounded annual rate of 29% over the next four years, said Giada DeCarcer, founder and CEO of cannabis- focused analysis firm New Frontier Data.
Despite this outlook, the amount of venture capital investment in marijuana remains low compared to industries that traditionally receive this kind of growth financing. The second quarter of 2015 was the biggest ever. Even then, only about $ 150 million in capital was invested in marijuana- linked companies, according to PitchBook Data.
A year later, investments for the same quarter sank to $ 54 million, the financial analysis firm said. About $ 776 million in capital has been invested into the industry since the start of 2016, according to Viridian Capital Advisors.
In comparison, overall venture capital investment hit nearly $ 20 billion in the second quarter of 2015, rising to $ 22.1 billion in Q2 of this year. Legal pot’s slight investment draw was dwarfed by more traditional industries, such as software.
But the potential is obvious: a new study by Colorado economists found that marijuana legalization created 18,005 new jobs in 2015 and netted $ 996 million in sales and $ 121 million in taxes, with an overall $ 2.4 billion economic impact for Colorado alone.
Numbers like these have piqued interest.
“We are already seeing an enormous amount of interest from investors and entrepreneurs who recognize the unique scale of the opportunity presented by cannabis legalization,” said Troy Dayton, the Arcview Group’s CEO. Oaklandbased Arcview is an investment network that has made $ 84 million in marijuanarelated investments since 2013.