In the past few years, marijuana has been going mainstream. The plant is now legal in nine states, (plus Washington, DC) for recreational use, and in 29 states for medical use. The Global Cannabis Index, despite a 24.1 percent decline in the first three months of 2018, is still up almost 90 percent since late October.
The U.S. legal cannabis industry is on track to hit $25 billion by 2025, according to the latest forecast from cannabis analytics firm New Frontier Data. These numbers are certainly eye-opening to even the coyest of investors.
Investing in a cannabis company comes with many risks that could negatively affect an investment at any time. There remains a large amount of uncertainty in this emerging sector, especially as laws and business models continue to evolve. For those willing to assume the risk, the future may be paved in green.
How Can I Legally Invest in Cannabis?
The opportunities to invest in cannabis are plentiful, but many areas remain in a gray state as cannabis is still federally illegal in the United States. As such, any business that deals directly with, or “touches” the plant, cannot be listed on the exchange. This leaves very few options on NASDAQ for the traditional investor.
Many Americans are sending their investment dollars across the border and into Canada where the marijuana market will be completely legalized by July 2018. Others are considering cannabis-specific ETF’s and the less-traditional crowdfunding. For the more timid investor, the cannabis ancillary market, (security, packaging, equipment, lighting, etc.) presents endless opportunity.
If you are one of the countless looking to jump on the Marijuana Express and boost your investment portfolio, consider some of the following legal avenues.
Take a “Hands Off” Approach
There are numerous companies operating under the umbrella of the marijuana industry, but their business does not actually grow the plant or sell cannabis products directly. Examples of this would include agriculture technology, insurance, biotechnology, packaging, industrial hemp and consumption devices.
Some of these companies have already gone public and are listed on the NASDAQ, while others are soon to follow. The investor with a keen eye should keep a close watch on this burgeoning space.
Kush Bottles, Inc. (OTCQB: KSHB) is a leading wholesaler of packaging, supplies and accessories for the cannabis industry. Kush is one of the market’s best performing U.S. cannabis stocks and has appreciated a rise of more than 120 percent in the past year. Other publicly traded cannabis stocks include Terra Tech (OTCQX:TRTC),Grow Generation (OTCPK:GRWG), and MPX ((CSE:MPX) (OTC:MPXEF)). A complete list can be found on Green Market Report.
Nick Kovacevich, CEO of Kush Bottles, advises investors to “take a varied approach and invest in market leaders in the Canadian public market, the US public market and the Private Market.” He continued, “Align your capital with the market leaders and be ahead of the category.”
Kovacevich recommends looking closely to see which companies in each sector have raised money and seem to have quality investors backing them. Look for market leaders like Baker in CRM (customer relationship management),Simplifya in compliance, Wurk in HR, and Eaze in delivery.
Crowdfunding and Cannabis
Crowdfunding combines the best of crowdsourcing and microfinancing, bringing together individuals who commit money to projects and companies they want to support. It’s a young and quickly growing market, as is cannabis, and it’s transforming how people behave with their money.
SeedInvest, an equity crowdfunding platform that connects startups with investors online, has been dipping its toe into the proverbial cannabis pool offering investment opportunities in companies like HelloMD, MJ Hybrid Solutions and Emerald Metrics.
Through their online platform, SeedInvest has opened access to venture capital and angel investing to anyone who is interested. The company began cannabis fundraising in April 2017, and in the first eight months raised $4.5 million for three companies, HelloMD being the biggest raise at $3 million, ($2 million from accredited investors and $1 million from non-accredited).
According to Nicolas Leeper, VP of Venture at SeedInvest, “Cannabis is one of our strongest performing verticals across the platform.” Investors had been asking for inclusion of this sector on the platform and as such, Leeper brought ancillary opportunities to their crowdfunding community.
Regardless of how or when you may decide to invest in this growing space, it seems that most investment experts agree with Patrick Rea of Canopy Boulder, aseed-stage business accelerator program and venture fund for the legal cannabis industry.“Understand that this type of investment is high risk and high return. You need to diversify into different types of cannabis companies and make multiple investments to mitigate risk.”
Karan Wadhera of Casa Verde Capital, a venture capital firm focusing on the ancillary cannabis industry, concurs. If you are an investor who is new to this space, “make sure to have broad exposure and diversification in your cannabis investments.”