Looking for a fun way to do due diligence on a hot new investment? Financial advisors, and their clients, might want to try a luxury tour of Colorado’s fledgling cannabis industry, including head shops, dispensaries and growing facilities.
That’s just what a group of over 200 high-net-worth investors from around the country—as well as a media corps that included a documentary film crew from Rai, Italy’s national public broadcasting company—did on Sunday, boarding seven luxury buses in Denver and embarking on a tour of local “canna-businesses.”
The trip was part of a two-day gathering of members of San Francisco-based ArcView Group, which runs an angel network for cannabis investors. It was timed to precede the National Cannabis Industry Association’s business summit, which was held Tuesday and Wednesday.
ArcView members have invested over $10 million in 14 private cannabis-related companies. A report by the network in 2013 estimated that the legal U.S. cannabis market was $1.5 billion in 2013 and projected it would grow more than 68 percent to $2.6 billion this year.
Investors may ultimately find that direct investments in businesses that handle the plant itself are not necessarily the best bets when it comes to making money in this industry. ArcView member Patrick Rea, founder and fund manager of Boulder-based MISO Capital, which invests in ancillary legal marijuana businesses, says the plant itself is not where investors should put their money. Sudden increases in supply have been known to dramatically drive down prices.
“There’s more supply coming online. Investors need to invest in companies with intellectual property that’s defensible and sustainable, not in crops,” says Rea. Of the ancillary businesses, he says, “There’s so much more opportunity.”
A guide from North America’s first legal marijuana tourism company, My 420 Tours, led the tour, explaining Colorado’s laws on adult recreational marijuana use, including rules on consumption, as the buses departed. Smoking on the bus was OK, the marijuana tourists were told. Smoking on public sidewalks while outside the bus? Not OK.
My 420 Tours started with about two outings per month and now runs tours every weekend, with 10 to 60 guests per tour, according to the guide. Most of the tourists come from Florida and Texas, she said, although the tour is also popular with Canadians and has had participants from as far away as Switzerland and Pakistan. The company recently added a second tour that visits multiple Rocky Mountain dispensaries, along with hot springs and other attractions.
The marijuana industry, however, sits in an odd place among U.S. industries for the time being, and this was evident among the tourists who packed the touring buses. Selling, distributing and possessing marijuana is still illegal under federal law, so some investors are understandably reluctant to tout their association with the cannabis industry. So while ArcView counts several prominent billionaires among its members, the nametags that investors wore on the tour had only first names and last name initials.
Functional Art
The first stop on the tour was Illuzion Glass Galleries in downtown Denver, a showcase for ornate pipes and smoking devices created by locally and nationally recognized glass artists. A sales associate said that business accelerated around Christmas 2013, in anticipation of the January 1 launch of Colorado’s adult recreational marijuana industry, and that sales have been “nonstop” ever since.
The gallery’s devices include a 30-inch-high, $45,000 bong featuring a bluish, alien queen with multiple skulls seated on a throne. The company’s most famous piece is in its new Boulder store: a $60,000 glass pirate ship with an anchor, sails, cannons and a removable center mast from which aficionados can smoke.
“Sweet and piney” is how tour members described the scent of fresh herb in the grow rooms of the tour’s next stop, LaConte’s Clone Bar + Dispensary in North Denver. Near the door to each room was a 120-day planner tracking growth cycles and time to harvest. Colorado retail stores sold about $19 million worth of recreational marijuana in March, up from about $14 million in February, according to the state Department of Revenue.
Back on the bus, the sparkling wine flowed for some ArcView members, while others tested the “go.pens” in their gift bags. The pens, made by Denver-based O.penVAPE, allow users to inhale vaporized hash and cannabis oil, which can then be exhaled minus the odor associated with smoking a joint.
Growing Business
After a stop for lunch, the "canna-bus" rolled toward Medicine Man Denver, which operates one of the largest medical and recreational marijuana dispensaries in Colorado. The company was a 2012 High Times Cannabis Cup Winner in the “Best Sativa” category. ArcView members have invested over $1.7 million in this business over the past nine months.
Medicine Man’s storefront resembles many other businesses, with an ATM in the lobby, signs promoting customer loyalty cards and specials, including a daily happy hour. Four “bud tenders”—think “bar tenders,” but for weed—on the retail side of the operation served a steady stream of customers.
Despite the difficulties this industry often has in obtaining banking services because of the federal bans, a sign in the retail area said Visa, MasterCard and Discover were accepted. Medicine Man has about 20,000 square feet of dispensary and grow operations, with another 20,000 square feet soon to be added, according to a tour guide.
Medicine Man's level of security distinguishes it from many other cannabis businesses and other businesses in general. Several security guards were present throughout the operation. An armed guard at the door checked IDs to ensure that those entering the store were over 21 years of age. The guard, an employee of Blue Line Protection Group, which specializes in security for the legal marijuana industry, said one reason for the heavy security is to deter would-be robbers. Marijuana dispensers and growers are often cash-based and have trouble getting insurance. Guards make these businesses more attractive to investors, he said.