It’s clear that investing in cannabis could lead to some big returns, but it also comes with a risk. Zachary Venegas, CEO of Helix TCS Inc., a cannabis security and transport company and an intelligence firm for venture capitalists recently spoke on cannabis investing.
In 2017, cannabis-related cultivation and retail investments reached a stunning $718 million. This revenue helped cannabis agricultural technology infuse products and software to attract more investors. The industry is getting so large that it’s projected to exceed $50 billion by 2022.
Venegas claims California has the leading market on cannabis. He said, “California’s medical cannabis market is already as big as the total markets in Colorado, Washington, and Oregon combined by most market participant’s estimates.” Venegas also believes that “the legal cannabis market could reach sales of over $20 billion in the next few years.”
However, even Venegas recognizes caution is needed when looking at investing in cannabis. He warns investors, “No profit-minded professional would prudently ignore such a market, but one must be mindful that this unique sector is rife with complex legal and regulatory risks.” Venegas has covered many cannabis related topics in previous talks and speeches. This includes the legal distinctions between recreational and medical marijuana, the risks in each industry for producers, retailers, and other ancillary support businesses, the regulatory environments in the U.S. States, the cannabis “frontier market,” and the differences between a marketer or an operator.
Of course, the biggest risk to consider when investing is the legality of cannabis, particularly regarding Schedule 1 of the Controlled Substances Act, a federal statute that places cannabis on the same level as heroin and other narcotics.
Despite the overwhelming support from 30 states for medical marijuana and the support from 9 states for recreational cannabis, there are still federal restrictions in place on production, distribution, and possession. Cannabis laws also vary from state to state and within states.
However, Venegas isn’t opposed to investing. He states, “For 2018, private and public funds are investing tens of millions of dollars in anticipation of several industry catalysts that will be seen. New Exchange-Traded Funds (ETF) are coming online that are heavily investing in companies in the cannabis industry.” Canada is also a spot of interest for cannabis investors.
There are other risks besides the legality of cannabis to consider before investing. Venegas states, “Many people assume that having a license to operate a cannabis dispensary is a golden ticket to automatic riches. That assertion is flawed, as profitability and ultimate business success will still be subject to adequate capitalization, sound business practices, and as we are seeing in Colorado, the law of supply and demand…before it can grow and move away from a model that heavily relies on cash, the cannabis industry needs to secure access to financial markets. But due to federal regulations, banks, and even insurance companies stay away…growers, dispensaries and research labs have to secure financing from credit unions or ‘angel’ investors.”
Cannabis comes with a few more risks than the average stock. Understanding these risks is the key to making a good investment.