Thirty years ago, buying cannabis was difficult, expensive and illegal. Buying cannabis in 2019 is somewhere between picking up a prescription from a pharmacy and buying beer from a liquor store. Join columnist John Tudhope each week as he visits cannabis companies in Los Angeles and discusses the budding industry.
Cannabis investment is a high-risk, high-reward game. No pun intended.
The legal cannabis industry is going to be enormous, no matter how you measure it. Not only are there retailers, cultivators and manufacturers, but there are also testing labs, attorneys, technology companies and a laundry list of different businesses vying for success.
New states are opening up legal markets, Canada has federally legalized marijuana and LA, the largest city in the nation with legal cannabis, continues to expand its industry – there are literally billions of potential dollars up for grabs.
Behind most, if not all, of these emerging companies is an investment. The money can come from the business owner, the business owner’s sister, a friend or an outside company that believes the concept, product or business owner is worth giving their money to.
To learn more about the financial influence behind the budding industry, I spoke with two different cannabis investment firms. I was curious about what makes the gamble appealing, and the risks associated with investing millions of dollars into a product that can land someone in jail in certain parts of the country.
Michael Waldman of Goldstock, a cannabis investment firm, said anywhere from seven to eight out of every 10 startups will fail, including cannabis businesses. Hopeful business owners bring what are called “pitch-decks” to these investors and present their companies and products, in return, asking for an investment a la “Shark Tank.” But unlike the rehearsed pitches and theatrical presentations of “Shark Tank,” Waldman said the majority of proposals he sees are not worth his time and money, and he looks to make upward of 10 percent return for the businesses he chooses to work with.
Roger Abramson, a businessman who built a $100 million business, said his venture capital firm, Abramson Accelerator, has an opportunistic stake in the infant market. He believes it is the fastest growing industry in America and is an avid advocate for the medical benefits of the plant.
“I’m an entrepreneur at the core – I’ve been in three industries, and I see the gold rush,” he said. “I believe it is going to be much bigger than people think. I think in 25 years this is a $500 billion industry.”
Abramson said the only way to ensure his money is safe is by doing his due diligence with thorough preliminary research on the company of interest. He has slept on couches and insisted on meeting people’s families to get a comprehensive understanding of the companies he might invest in and their business plans. Abramson said he prefers stock options – owning a piece of the company – rather than cash investment returns.
Abramson predicts that strict banking regulations which prohibit cannabis businesses from using common banking services will ease in six months and that cannabis will be federally legal in 24 months. I’m looking forward to seeing if Abramson’s predictions are correct, then maybe I might ask him to invest for me.
What these two investment groups have in common is first and foremost a passion for the future of the cannabis industry. They both stress the importance of knowing what businesses have growth potential and what businesses are risky. Ultimately, they both stated that cannabis testing labs are safe and have a high potential for return, and as such, are a focus for their firms.
Abramson and Waldman both referenced an oddly specific but impactful example about where they think the industry is headed: One day, they believe cannabis may be available in 7-Eleven convenience stores. I guess it takes this kind of vision to make risking millions of dollars seem worth it. Now I hope I’m not drinking the Kool-Aid, but I think the 7-Eleven example may not be far off.
What I learned about cannabis investors is that, in many ways, they are the same as any other investors – they take money and use it to stimulate businesses for a piece of the pie in return. But what makes cannabis investors different from any run-of-the-mill financier is that they believe in the massive future of cannabis – a future in which cannabis may be sold in between the AriZona iced teas and the Budweisers.