The cannabis industry has the potential for massive growth. But how much are investors putting into legal cannabis enterprises this year? Is there a growth pattern that future investors can rely on?
Let’s check the numbers.
This Is a Good Year for Pot
So far in 2018, wealthy investors are showing their support and backing marijuana-related ventures.
The amount investors put into cannabis passed a billion just a month into 2018, as reported by the Viridian Cannabis Deal Tracker, which keeps tabs on investments in the sector. As Benzinga noted, that made for a 600% increase over the total raised in the same brief period in 2017.
Companies attracting shareholders include:
- Village Farms International Inc., which is actively courting investors.
- Emerald Health Therapeutics Inc., which this year signed a letter of intent with DMG Blockchain to form a joint venture, CannaChain Technologies, to use blockchain in supply chain control and e-commerce.
- Aurora Cannabis Inc., which is opening a chain of retail dispensaries throughout western Canada.
- Canopy Growth Corp., the world’s largest pot grower. Celebrity weed entrepreneur Snoop Dogg has just invested in Canopy Growth, and with Snoop Dogg as part owner, Canopy gains exclusive rights to Leafs by Snoop.
- Cronos Group Inc., based in Toronto, which in February 2018 became the first plant-touching company on the NASDAQ.
- Aphria, a major grower in Canada that maintains a 28.1% interest in Liberty Health Sciences, which focuses on U.S. cannabis.
- AbbVie Inc., which has a cannabis-based drug among its various pharmaceuticals on the market. The company’s FDA-approved Marinol treats nausea that’s a side effect of chemotherapy.
Notable Companies Are Raising Significant Capital
Privateer Holdings is a private equity firm based in Seattle known for its strong support for research in the medical cannabis area. In January 2018, Privateer announced it had raised a record-breaking $100 million in cannabis industry investment. The funds will both expand existing companies and empower new ventures. Privateer’s portfolio offers a range of companies, intriguing and diverse, including medical and edible marijuana products, Marley Natural (the “Bob Marley cannabis”), and the news site Leafly. Three years back, Privateer got a massive boost from biotech financier Peter Thiel, whose Founders Fund invested millions in the firm.
Joined by individual investors, the game-changing tech backer Benchmark Capital recently poured $8 million in Oakland-based Hound Labs, which is developing a device drivers can use to be sure they are not too high to drive. It’s the world’s first affordable breathalyzer that accurately reads recent booze and pot use in a person’s breath.
Meanwhile, Wall Street money quietly flows into Merida Capital Partners, a private equity firm that draws backers from the financial and tech sectors. Merida is keen on investments in companies providing ancillary products for marijuana distribution and sales, such as software and packaging. The company is also financing the growers themselves, with about 15% of the portfolio connected to plant-touching businesses. Since Mitch Baruchowitz founded the New York-based firm in September 2016, Merida’s assets have topped $50 million. Merida performs due diligence on about ten out of the 75 deals it sees in the typical month.
MedMen, a Los Angeles-based private equity firm, merits notice here as well. It raised about $80 million for North American cannabis businesses in the last year.
And there is Kalyx Development, which buys real estate that the cannabis entrepreneur can use, with special attention to compliance with zoning, state-specific regulations, and the logistical hurdles that await businesses entering the sphere. The firm’s current focus is the western states whose policies reflect their early adoption of the economic benefits brought by cannabis startups. Kalyx believes that the steady progress in U.S. cannabis legalization offers increasing opportunities in this market.
The Oakland-based incubator firm Gateway draws a lot of interest with investors from tech icons such as SpaceX and Oracle. Its investors are particularly interested in the future of medicinal foods. And there’s the Arcview Group, the Oakland-based cannabis research and capital firm which has led the pack for a long time. Arcview has made hundreds of individual investments happen, and has raised well over $130 million for cannabis companies since 2010.
What’s Driving Cannabis Investment?
There are still barriers to getting into and setting up a cannabis business. And institutional investors are still watching as the landscape develops. At this point in the game, the individual investor stands to make impressive gains.
And the opportunities for the bold investor who learns the landscape continue to trend upward. No wonder, recent polls show a cultural sea change in response to pot. Sixty-four percent of the U.S. population now supports legal cannabis.
With most states having already approved medicinal use, the Hemp Business Journal projects a $2.1 billion CBD market by 2020. As a whole, cannabis industry growth will bring the sales total of $6 billion in 2016 up to a whopping $75 billion by 2030, Bloomberg projects, citing investment banking experts at Cowen & Co.
All green lights for smart money.
So, can we expect continued momentum for marijuana investments ahead. The legalization of adult-use cannabis in Canada opens what the Canadian Broadcasting Corp. recognizes as the financial opportunity of a lifetime.
And once U.S. banks are no longer barred from working with marijuana-related businesses or the people who start them, the U.S. industry will be able to succeed at an unprecedented rate. At that point, expect Canadian marijuana growers to bulk up their investments in U.S. operations, as U.S.-based companies join their Canadian counterparts on the stock exchanges.
The era of recreational marijuana is arriving in North America. Are you ready?
Note: This article provides our readers with a general overview of recent investment trends in the legal cannabis sector and related information. It constitutes neither legal advice nor financial planning advice. As with all capital investments, cannabis stock purchases warrant careful examination based on a range of expert information prior to investment. In a changing regulatory environment, stocks have special inherent risks as well as growth potential.
