Ten years ago, investing in pot meant ponying up a few hundred dollars for an ounce to divvy up into dime bags to sell to your friends for a profit, but relaxing laws around medicinal and recreational cannabis have given way to a multibillion-dollar industry and a lot of opportunity for growth.
The legal weed market is growing so fast that it has been called the “green rush” — drawing comparisons to the California Gold Rush of the mid-1800s. Last year, North Americans spent $7 billion on legal cannabis products, a 34 percent increase over the prior year, and experts say spending will top $22 billion by 2021, according to the Arcview Group, a leading cannabis investment and market research firm.
That’s a lot green, and investors want to cash in, Arcview CEO Troy Dayton said.
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“This industry is going to grow more than three times in the next five years, and that’s just in the U.S. and Canada,” he said.
But who will be making the most green off the budding cannabis industry? It will be the same high-market investors already capitalizing, Dayton said. This is partly because they are the ones with assets to invest and partly because federal securities regulations limit the options available to unaccredited investors. An accredited investor must have a net worth of at least $1 million, excluding the value of one's primary residence, or an income of at least $200,000 for each of the last two years.
“Unfortunately — and it’s not fair that it works this way — it’s just another way in America that the rich are going to get richer,” he said.
But just because it’s harder for the little guy to make a buck doesn’t mean it’s impossible, Dayton said.
“Almost all opportunities open to nonaccredited investors are ancillary companies that don’t touch the plant directly,” Dayton said, noting there are plenty of these to go around. Ancillary companies include anything from soil and growing supply companies to vaporizer companies.
Crowdfunding gives hope to the little guy
Another option is private companies that choose the crowdfunding route.
Billing itself as “the Amazon of cannabis,” Hello MD is a tech startup opening up investment opportunities to small-time investors.
A California-based company, Hello MD provides a simplified solution for medical marijuana patients. It connects patients with doctors who can recommend a marijuana treatment, and it curates a marketplace for dispensaries to sell their products to patients. It has seen massive growth, now catering to more than 150,000 patients, and founders want to roll the platform out to other states where medical cannabis has been legalized.
First on the list? New York, but CEO Mark Hadfield said all 28 states where medical marijuana has been legalized are in their sights.
The company made almost $2 million last year, but Hadfield said their cash flow is breakeven at this point, so they’re reaching out to investors to help fund their growth.
Using the crowdfunding platform SeedInvest, Hello MD is offering securities to anyone who can pay.
“The investors get stock in a private company — that’s normally an opportunity available only to accredited investors,” Hadfield said.
Hello MD has raised nearly $1 million already, and the investment campaign runs through July 3. The minimum investment is $500. Investors should expect to hold onto their investments until Hello MD lists on a national exchange or is acquired.
No investment of this kind is without risk, and Dayton encouraged people to do their homework. The SEC charges higher fees for crowdfunding, so it is often a last resort, Dayton said.
“That being said, for products that are more consumer-oriented, sometimes crowdfunding is the right route because it can help generate excitement and draw in customers,” he said.