It seems like everybody is trying to get in on the “green rush” of the legal cannabis industry. And that includes a growing number of venture capitalists. The cannabis industry carries with it a number of unique opportunities — and risks — for investors willing to bet on legal weed. But if current trends continue, ventures capitalists are set to make some serious green.
Venture Capitalists And Legal Cannabis
There are a few important factors driving venture capitalists into the cannabis space. For starters, there is the potential to see some big-time returns.
According to experts at The ArcView Group, the legal cannabis industry in North America made $6.7 billion in 2016. That number represents a 34 percent jump from 2015. And they expect similar growth to continue well into the future. In fact, experts predict that legal weed will be a $23 billion industry by 2021.
“Very few consumer industry categories reach $5 billion in annual spending and then post anything like 25% compound annual growth across the following five years,” ArcView’s annual report said.
Venture capitalists are in a great position to tap into this growth. One big reason is that banks and other lenders are very cautious about working with cannabis businesses. That’s primarily because weed is still illegal at the federal level.
For example, most dispensaries have to operate as cash-only businesses. Banks and credit card companies don’t want to work with them. Without access to these sources of funding, many cannabis businesses must rely heavily on private investors.
Venture capitalists willing to bet on legal weed can take advantage of this. They can get in on the ground floor of an industry that’s about to explode. When they do, they set themselves up for big-time profits.
The Industry Right Now
There is already a lot of activity as venture capitalists learn about the legal cannabis industry. According to industry experts, there were 11 deals made in 2013. Those deals accounted for $11.91 million in investments.
In 2014, venture capitalists invested $71.56 million across 36 deals. Those numbers maxed out in 2015 when there was $226.38 million invested over 78 deals.
There was a dip last year, with $168.56 million invested across 78 deals. As of mid-April, venture capitalists had poured $18.6 million into new cannabis companies in 2017.
There is also a wide range of fields within the cannabis industry. Venture capitalists have backed weed companies involved with B2B services, B2C services, financial services, healthcare, information technology, and more. Each of these fields has significant potential for growth and for even more investment.
Cannabis In The Age Of Trump
The legal status of cannabis is the key variable. Every time a new state legalizes weed, it opens up new markets. And that means new opportunities for people to launch businesses and for venture capitalists to back those businesses.
But the opposite is also true. When there is a crackdown on cannabis, it hurts business. It also makes investors wary of putting their money into the industry.
There is a lot of uncertainty in the age of Trump. He has voiced support for medical cannabis. But he’s been less excited about recreational weed.
On top of that, there has been some alarming activity from key players in his administration. In February, White House press secretary said there could be “greater enforcement” of federal cannabis laws.
In March, Attorney General Jeff Sessions spoke out against cannabis. He said that weed is “only slightly less awful” than heroin. Sessions went on to say that medical marijuana “had been hyped, maybe too much.”
Trump’s move into the White House and his appointment of anti-cannabis personnel like Sessions has left many in the cannabis industry holding their breath and waiting to see what will happen.
Despite this, many experts think the industry will continue to grow. “While uncertainty about the Trump Administration has hurt public stocks, and institutional players may hang back, the administration is unlikely to have much impact on the projected growth of the market,” said ArcView’s most recent report.
The Final Hit
There are many good reasons for concern now that Trump is in the White House. But there could also be new opportunities for venture capitalists. In fact, the analysts at ArcView concluded that Trump’s presidency could create attractive new investment opportunities.
“This could be a time-limited opportunity for other investors to get good deals on companies while perceived uncertainty has reduced valuations,” they said.
One way or another, the green rush is here to stay. And venture capitalists are taking note. As the industry expands, so too will the opportunities for investing — and for seeing big-time returns.