As More States Legalize Marijuana, Investors and Marketers Gear Up
Quietly on election night, overshadowed by the epic battle between blue and red, the map of America grew greener. Voters in four states — California, Massachusetts, Nevada and Maine — chose to legalize recreational marijuana. In Florida, Arkansas, Montana and North Dakota, ballot measures passed allowing pot to be used for medical purposes. (Only Arizona bucked the trend, saying no to recreational weed).
About 60 percent of Americans now live in a state where cannabis is legal or soon to be legal in some form. And with marijuana use on a steady march toward normalization, if not outright national legalization, the booming cannabis industry appears bound for even greater growth.
The smell of money is in the air. "Support for legal cannabis was one of the few mandates voters in both red and blue states delivered" Nov. 8, said Brendan Kennedy, CEO of the marijuana-focused private equity firm Privateer Holdings.
Since the passage of the eight ballot measures, he says there's been a surge of interest from investors "who recognize that the end of cannabis prohibition is inevitable."
The marijuana market has some unique characteristics that make it attractive to investors. And also some unusual risks. The big draw comes down to basic math: The fledgling legal market for marijuana is around $7 billion, according to New Frontier and ArcView Market Research.
That's big, but dwarfed by what Kennedy says is the overall $50 billion U.S. market, most of which remains illegal. So as legalization gains steam, the black market shrinks and legitimate investors and businesses stand to monetize tens of billions of dollars.
It's not all clear sailing, however. While polls show that about 60 percent of Americans now favor legalization of marijuana, cannabis remains illegal under federal law, a Schedule 1 drug like heroin or LSD under the Controlled Substances Act. And because of federal prohibition, marijuana businesses are largely barred from using the banking system.
None of this seems to have discouraged the growing legion of marijuana entrepreneurs. Randall Huft, Founder and Creative Director of the Innovation Agency (www.inov8.us), one of the nation's leading marketing, advertising and communications companies focused on the cannabis industry, says the "phone has been ringing off the hook" with calls from potential clients since the ballot measures passed.
In response, he says he plans to add to his staff in the first quarter of 2017. "We are in the unique position of having experienced advertising and branding professionals who have worked on Blue-Chip accounts like IBM, United Airlines, American Express, and Disney, now applying their expertise to the cannabis industry," he says.
The growing scale of the marijuana industry has made it more professionalized, more corporate. In Colorado, where recreational marijuana became legal in 2014, there's consolidation — mergers and acquisitions among operators.
There's an array of products beyond smokable cannabis. Edibles, capsules, gels, lip balm, even THC-infused "personal lubricants." There are products marketed to sore-jointed boomers, products for people with chronic diseases, edibles curated specially for vegans. The singer Melissa Etheridge just announced plans to make cannabis products for medical patients in California. "I'm right in the process of branding," she told Billboard.
As the so-called "green rush" gains momentum and legitimacy, professionals are increasingly willing and eager to offer their expertise.
"The support around the industry is growing," said Adam Bierman, CEO of MedMen, an investment firm for the legal marijuana business. "Accounting firms, legal firms. All the different professional services that because of the position we were in a year ago, two years ago, three years ago, with the stigma around the industry, those people wouldn't work for us." Now they do, he adds.
Bierman says the financial backing flowing into legal marijuana has come from wealthy individuals or companies that manage assets for affluent families. Discreet, quiet money. Not Wall Street, not institutional investors like mutual funds. But he expects that to change. "I think we'll see it in 2017," Bierman says.