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Come One, Come All: The Investors Are Here

Photo courtesy ArcView Group

Economics

Come One, Come All: The Investors Are Here

As the growth of the legal cannabis industry continues and precedents within the business are consistently set, investors are coming out of the woodwork in order to stake their claim of the landscape that is cannabis commerce. With the number of services that cater to users of cannabis and cannabis-related products, financial investment has grown with the exciting prospect of lucrative return.

According to reports from The ArcView Group, sales of legal cannabis nearly doubled in the past year, up from $1.5 billion in 2013 to $2.7 billion in 2014. This spike in sales, coupled with additional states considering mandate reform that could push the total number of legalized states to 29 and a cross-party effort to eliminate federal limitations on medical cannabis where it’s allowed, has prompted a wide variety of companies and entrepreneurs to invest. Videogame designer Dooma Wendschuh is one of those entrepreneurs.

In 2014, Wendschuh contacted seven investment groups and over 400 individuals in order to gain investment money for a marijuana extract that could be used in food and vaporizers. Through his solicitation he was able to round up $2 million for his company, Ebbu. Sold in only four Colorado dispensaries, Wendschuh is ecstatic at not only the amount of extract that he has sold but also the profit that he has gained.  Ebbu produces each extract for $2 and sells them for $35. Barely able to raise $2 million dollars from initial investors in 2014, Wendschuh was recently throttled with offers from unsought financiers and businesses specializing in accounting, consulting and security while attending the Marijuana Investor Summit in Denver.

“You can make a lot of money in marijuana,” Wendschuh told Fortune. “If you make it, it will sell. It’s unreal.”

The profit margin that Wendschuh has been able to create is what has provoked investment groups such as ArcView to decant over $41 million into 54 cannabis companies. They have their hands on nearly every facet of the cannabis industry, from delivery services such as Eaze to dispensaries.

According to New York-based brokerage company Convergex, as of today Colorado’s pot trade is worth over $1 billion – an amount Nicolas Colas, a member of the firm, says is “a number so hard to reach that (venture capitalists) call any company worth that much a ‘Unicorn.”.

It wasn’t until companies such as Founders Fund, ran by Peter Thiel, invested millions of dollars into Privateer Holdings and Marley Natural cannabis strains, that institutional companies such as ArcView, with its network of roughly 500 individual stakeholders, began to heavily finance the legal cannabis business.

Large investment firms aren’t the only companies striving for a big payday by jumping into the cannabis industry. The variety of companies willing to research and invest into the marijuana industry is startling. Law and public relation firms, insurance companies and even janitorial services have begun to expound on their specialized knowledge of weed and its regulation.

“The industry is losing its taint as a drug industry and is becoming a much more sophisticated market,” said Scott Greiper, president of Viridian Capital Advisors, a company that tracks marijuana investments of small financial firms and family offices. “Advanced lighting, soil and cultivation systems are being developed. Data analytics promise to reveal what’s selling…track marijuana from seed to sale. Biotech companies are trying to pinpoint the strains of cannabinoid that can benefit diabetes, epilepsy and glaucoma.”

Even with a federal bill that protects banks from being liable for servicing legal marijuana businesses, many banks still will not do business with cannabis companies.

John Davis, owner of Northwest Patient Resource Center in Seattle, has had to beef up his dispensary with extra security such as concrete walls and camera systems due to having to deal in cash. “I’ve lost five banks and a colleague has gone through 19 banks,” Davis said.

However, the investments are stilling rolling in, giving hope that the economic side of cannabis will slowly start to reflect more of the social and cultural aspects.

What type of cannabis companies would you invest in? Tell us in the comments.

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