Opportunities and Threats in the Cannabis Industry

111615_Opportunities and Threats in the Cannabis Industry 

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Many claim that the cannabis industry is the biggest investment opportunity since the dot-com boom at the turn of the century, and the current figures prove it: Marijuana sales in the United States in 2014 totaled $2.66 billion, up 74 percent from the previous year’s $1.53 billion. With more states contemplating on legalizing both medical and recreational marijuana, the numbers are bound to go up even further.

But what many people don’t realize is that getting into cannabis commerce in not a walk in the park. “A lot of people look at the cannabis industry and say, ‘Oh my God, it’s so much harder. So many barriers, you’ve got endless problems,'” said Troy Dayton, CEO of cannabis industry investment network ArcView Group.

Marijuana’s Birthing Pains

ArcView Group has certainly seen these challenges firsthand. When they started hosting conferences to connect marijuana businesses to investors, most of the participants were the stoner stereotypes, caring more about smoking weed rather than making money off of it.

But even though ArcView events are now drawing professionals that show the maturation of the industry, the problems are still evident, especially for businesses that are just starting out. Some of these problems include steep initial investments, heavy tax burdens, complex regulations, difficult license applications, unsuitable locations, and few banking solutions.

For instance, applying for a license require entrepreneurs to have a suitable location beforehand. Thus, they usually need to pay rent for months ahead without knowing if the dispensary will be able to open or not.

The lack of proper financing and banking solutions also adds up to the challenges, as many in the marijuana industry have been forced to do transactions in cash. Security issues will remain a constant threat until the federal government stops categorizing marijuana as illegal and finally gives bankers peace of mind that they will not be punished for helping out cannabis ventures.

Even the taxes continue to be burdensome as weed companies can’t write off business expenses tied to the drug. They mostly rely on tax breaks in order to make a profit.

Strict zoning laws have also made it harder to find a suitable compliant location for a dispensary, as real estate prices have risen up in hotspots where there is high demand for cannabis. Mark Chapdelaine, co-founder of online cannabis real estate listing service HerbFront, estimates that the fair market price for marijuana-zoned properties is already 150 percent higher than their typical market value.

A Bright Future for Marijuana

Despite these challenges, the future remains bright for marijuana. “Well, some people see endless problems,” Dayton said. “Other people see endless problems disappearing fairly soon and see this as a great investment.”

Cannabis commerce has already brought millions for dispensary owners and cultivators. However, weed also opened up a bustling ancillary market, this driving job growth and increasing revenue.

For instance, growing cannabis indoors would mean buying high-wattage lights, driving revenue for businesses in the lights sector. Companies that provide security cameras, alarm bells, and guard dogs are also thriving.

There are also seed-to-sale tracking systems being marketed to stop weed from slipping into the black market. Organized tour groups that shuttle customers from one dispensary to another also give a huge boost to a state’s tourism program. Even insurance brokers are benefitting from cannabis, as insurance is an important part of the licensing process.

As more and more states are legalizing marijuana, it is also only a matter of time before bigger players step in. “There are the big producers, but there’s also the small and the medium size. You’re certainly going to see some consolidation,” Dayton said.

“It’s going to be the brands,” added Michaels Swartz, an analyst from marijuana-focused investment firm Viridian Capital. “It’s going to be about quality, but what’s even more important is the brand.”

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