From Forbes, Fortune and Bloomberg, media outlets have been discussing the money pouring into Colorado from cannabis taxes and tourists. Todd Harrison, CEO and Founder of the internet-based finance media company Minyanville, has even said that “cannabis will be the single best investment idea for the next 10 years.”
With all the buzz surrounding the blooming marijuana business, it seems everyone is curious to know whether cannabis investing can live up to the hype. In short: yes. The proof is in the portfolio.
Even with its ongoing federally illegal status, bigger players are starting to emerge. Players like Founders Fund, a leading San Francisco venture capital firm with a $2 billion dollar portfolio, partly run by PayPal co-founder Peter Thiel with holdings in companies like Airbnb, Lyft, Spotify and SpaceX — Elon Musk’s private spaceflight company. In January, Founder’s Fund announced that it was making a multimillion-dollar investment in a cannabis focused private equity firm called Privateer Holdings. Their most popular brand is Leafly — a well-known dispensary locator service and review site.
The announcement gives the legal marijuana sector the initial tidings of credibility as a potential investment heavyweight, despite its continuing conflicts with state and federal laws, banking restrictions and much less credible investors looking to cash in on pump-and-dump schemes (think Wolf of Wall Street, but less glamorous).
Privateer’s chief executive, Brendan Kennedy, believes that momentum has shifted toward legalization and the investment by Founders Fund signals greater acceptance of cannabis in the financial sector.
“Six to 12 months from now there will be investment banks who will have analysts following cannabis like they follow health care or agricultural commodities,” Kennedy said.
This prediction isn’t as farfetched as it may sound to some. According to The ArcView Group, a California-based cannabis research and investment firm, the legal marijuana sales reached $2.6 billion last year, a 68 percent increase from 2013. They are now estimating sales could reach $10.2 billion by 2018.
One of the many hurdles standing in the way of mainstream cannabis investing is stigma.
“Ending prohibition is a moral imperative for the U.S.,” said Founders Fund partner Geoff Lewis, who objects to drug laws that crowd prisons and favors legalization that creates regulations, labeling and greater tax revenue.
Dr. Tro Kalayjian, Chief Medical Analyst for Chimera Research, explained that, “The biggest impediment to investing in medical marijuana, particularly in the United States, is federal law. That also makes for the most interesting investment catalyst when legalization occurs.”
While no one is expecting to see any major hedge fund firms combing the marijuana stocks yet, the gap can only be good news for smaller investors looking for a way in. For those interested in expanding their portfolio, there are resources for marijuana investing. Marijuanastocks.com compiles marijuana stocks, statistics and market research; ArcView recently released the third edition of their marijuana market report and sites like Cannabis Investing News post daily company and market reports.
In short, many large firms are most likely positioning themselves for major investment opportunities when the time comes.
Despite the growing acceptance and legitimization of cannabis in the investing world, many advisers say to proceed with caution. Most cannabis stocks remain in the penny-stock range and, although that can be attractive to smaller investors, they are subject to extreme market volatility from unfounded hype or a seemingly random spike in interest. While stocks may soar one day, they could be just as low or lower the next. These kind of wild variations aren’t typically found in the day-to-day traditional stock exchange.
If investors are willing to look past the risk and see the potential, there are millions of dollars to be made.
What cannabis company or stock would you put money into? Tell us in the comments.