Cannabis is the fastest growing industry in America, according to a 250-page report ArcView Market Research released in November. The report projects that the industry will grow from $1.44 billion in 2013 to $2.34 billion in 2014, a 64-percent increase.
Despite federal prohibition, 20 states and the District of Columbia currently permit the use of marijuana for medical purposes. Colorado and Washington are the first states to legalize adult recreational use, with recreational retail sales in Washington expected to start later this year. As legalization spreads to other states, the ArcView report predicts a five-year national market potential of $10.2 billion in 2018, which represents a whopping 47.9-percent compound annual growth rate from 2013.
Intrepid Investors
Besides providing angel capital, wealthy clients can also invest in one of several private equity firms in the cannabis space. The managers of the just-launched High Times Growth Fund told The Denver Post they hope to raise $100 million over the next two years to invest in cannabis-related businesses.
Established private equity firms include Denver-based Mjardin, Newport Beach, Calif.-based Ghost Group and Seattle-based Privateer Holdings, reportedly the first private equity firm to invest in the legal cannabis sector.
Privateer closed its first investment round last year and plans to raise another $25 million to $50 million in April, according to chief financial officer Michael Blue. The firm acquired its first portfolio company in 2011, an online startup with over 80,000 user-generated reviews of 500-plus strains of marijuana. “Our flagship company, Leafly.com, is completely redesigning the Web site, releasing new iPhone and Android apps this week. We’re launching a French version of Leafly this week as well,” says Blue.
While there are about 20 public companies that sell products and services primarily aimed at the medical marijuana industry, many marijuana-related stocks are volatile and thinly traded with small market capitalizations. Bloomberg News reported last week that speculators have caused shares of several marijuana stocks to soar over 100 percent, and in one case over 1700 percent, since recreational sales began in Colorado. Finra was concerned enough to issue an investor alert in August 2013.
“This is still a pretty immature industry,” says Dayton. “There are a lot of scammers out there. In any gold rush, there are going to be some huge winners and some huge losers.”