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The Marijuana Business Is Booming: Green Is the New Gold
04/01/2015 8:59 am EST
Michael Berger is the president and founder of Technical420.com, a sell-side research firm focused specifically on the cannabis sector. He was working for the equity research department at Raymond James Financial Inc., when he recognized a need for a service that provides up-to-date research and analysis on companies that operate in the cannabis industry.
Investors are rarely presented with the opportunity to get in on the ground on floor of an industry poised to see incremental revenue growth for decades to come. The last time investors had this opportunity was during the tech boom, which created countless millionaires. Technical420 expects to see this happen through the expansion of the multi-billion dollar legal cannabis industry, which is not even in the first inning of what will be a multi-decade growth cycle.
The growth of the cannabis industry has led to the creation of sectors within it. These sectors are comprised of ancillary businesses, which are levered to the growth of the cannabis industry. These businesses sell products and services such as specialty soils, climate control systems, grow lights, vaporizers, security solutions, and more. Over 150 years ago the market saw a similar opportunity, and today, investors have the opportunity to capitalize on it.
During the gold rush, most people did not make their fortunes mining for gold. The real winners were people such as Samuel Brannan and Levi Strauss, who sold the ancillary products to the gold miners (i.e. picks, shovels, clothing, etc.).
Today, there is a similar trend in the cannabis industry where many ancillary businesses seek to capitalize on the green rush.
Already a Billion Dollar Industry
In 2013, the marijuana industry generated nearly $1.5 billion in revenue. In 2014, the market expanded significantly, primarily due to Colorado and Washington State legalizing recreational marijuana. The total size of the marijuana industry grew around 70% in 2014 and is now a $2.6 billion dollar market.
During 2014, Colorado generated $700 million in revenue from the sale of legal marijuana and the industry is still in its infancy. These numbers reflect the revenue from the actual sale of marijuana only and do not account for the revenue generated by ancillary businesses such as grow lights, soil, vaporizers, security equipment, and other products and/or services. These businesses saw the demand for their products skyrocket during 2014.
Technical420 expects to see these numbers increase year over year as the market develops. In January 2014, there were only 30 to 40 recreational marijuana dispensaries open in Colorado and the state generated $14.7 million in revenue. In December 2014, there were more than 300 recreational marijuana dispensaries open and the state generated $35.1 million in revenue.
Colorado Is Just the Tip of the Iceberg
Marijuana legalization has been a hot topic at both the state and federal level and things are just getting started. Twenty-three states and the District of Columbia have legalized medical marijuana. It would be impossible to halt the progress made over the last year and it is only a matter of time until marijuana is legalized in some form at the federal level.
Marijuana will be a hot topic during the 2016 elections. Nevada is the first state to officially have recreational marijuana on the ballot. Similar measures are likely to be on the ballot in 2016 in states such as Arizona, California, Maine, Massachusetts, Michigan, Missouri, and New Mexico.
The Marijuana Industry Is Starting to Attract Institutional Investors
Peter Thiel, the co-founder of PayPal and Facebook's first outside investor, recently decided to invest in the cannabis industry. The Founders Fund was founded in 2005 and is a $2 billion venture capital firm led by Peter Thiel and three other partners. The fund has made notable investments that include Space X and Facebook; and now Privateer Holdings, a private equity firm focused on the cannabis industry.
The significance of an investor such as Peter Thiel investing in the marijuana industry is much more than infusion of capital. It gives the industry and Privateer a significant level of validation. Peter Thiel is a businessman who sees the potential in the cannabis industry.
Recent developments have shown a major shift in the public's view of marijuana. A number of highly respected surveys show that a majority of Americans support legal marijuana. The public has seen a number of red states, such as Georgia, implement legislation to reform its medical marijuana laws. President Barack Obama recently stated that the divide between Republicans and Democrats on marijuana politics is narrowing. He went on to say that he is encouraged by recent developments because liberal Democrats are no longer the only supporters of legal marijuana. Conservative Republicans have come on board too.
In short, the capital investments, the politics, the science, and the support systems are all coming into alignment to make cannabis a stellar investment option.
By Michael Berger, President and Founder, Technical420.com
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