Many times, passionate entrepreneurs jump right into businesses that they believe could be the “next big thing”, and don’t always realize the implications that come with it.
In cannabis you certainly have financial and regulatory challenges when you decide to start a business in this industry. This industry is filled with rapid regulatory or legal changes and uncertainty, making it difficult to invest.
Until we get congressional and legal changes in cannabis law, things will always be a bit dicey when it comes to the cannabis industry. Though many states are moving towards legalization, the federal government has been slow to legalize. There are many reasons as to why we have not seen drastic changes in the federal government, however we are getting closer to legalization in the federal government, but until that happens, we must protect ourselves as investors.
Many cannabis entrepreneurs have learned firsthand how expensive it is to own and operate a legal cannabis business. Literally everything is more expensive. From the lease to the taxes, cannabis companies pay more for everything!
With very little financial assistance available, entrepreneurs who want to start legal cannabis businesses must either self-fund or go after alternative financing options that cost the average business 2-3 times what it can cost for non-cannabis businesses to start their companies.
All these compactions with the added risk of potentially getting in a situation where you can be banned from opening bank accounts and being cut off from mainstream financial platforms. This has created a situation where investing in cannabis or starting a cannabis business may not be a viable investment for an investor.
As an investor you might ask, “Well, how can I invest in cannabis without having to worry about all the hurdles of being a cannabis investor?” There are several different ways that investors can invest in cannabis, reduce their exposure and not be labeled as a “cannabis entrepreneur.”
In this article we will explore several different investments that an investor can make and benefit from the rapid growing industry while still reducing their exposure to investing in a cannabis business.
The first is to invest in cannabis through buying stocks or securities. There are many cannabis companies now that are publicly traded entities that one can invest in. Some of the cannabis fastest growing securities are GrowGeneration GRWG, Cronos Group CRON, Village Farms International VFFN (source YCharts). However, just like any securities, all stocks are subject to volatility and can lose in value. However, they are regulated by the SEC and other regulated bodies that manage US Securities, so this can ease investors’ minds as they can invest in these stocks through any of the popular trading platforms such as E- Trade, or Robinhood.
Another rapidly growing industry in the cannabis field is cannabis accessories. Cannabis accessories never actually touch the plant as a business, however they create and develop products that support cannabis users and businesses.
Examples of companies that create and develop cannabis accessories are: KushCo Holdings (KSHB) that sells custom packaging and vaporizer technologies. They are considered an ancillary business as they never actually touch the plant but rather sell the packaging and the popular vaping technology that many cannabis companies and brands use.
Another investment opportunity in the cannabis industry that is relatively new is in the beverage space. There are many companies that are creating some unique beverages such as Anheuser-Busch InBev (BUD) who partnered with Tilray (TLRY) to develop marijuana-infused drinks. Also, Constellation Brands (STZ), the beverage maker behind Corona, made a sizable investment in Canopy Growth (CGC), and Molson Coors Beverage (TAP) which gained entry to the cannabis market through a joint venture with HEXO (HEXO).
Beer makers aren’t the only ones who are hedging their future on cannabis drinks. Coffee Holding (JVA), a nearly 50-year-old coffee company, bought a stake in privately owned CBD beverage firm The Jordre Well. This is a relatively new market and seems to be a rapidly growing area as there are more and more creative approaches to cannabis consumption beyond smoking and vaping.
Cannabis pharmaceutical companies have also been rapidly growing and evolving. There has been a major push for more research to the health aspects of cannabis and as a result has netted a great opportunity for investors. However, with that said, the challenge in this industry has been that the USFDA has not approved a marketing application for cannabis for the treatment of any disease or condition.
The FDA has however approved one cannabis-derived drug product and three synthetic cannabis-related drug products. Therefore it seems that this is a very early space and as more research is done I expect to see this area grow.
There are some companies such as AbbVie (ABBV) that create a synthetic form of cannabis, and Marino, that is used to treat nausea and the loss of appetite in patients who suffer from HIV/AIDS. Also, Jazz Pharmaceuticals (GWPH) announced in May that it had completed a 7.2- billion-dollar acquisition of GW Pharmaceuticals (GWPH), which make the scannabis derived seizure treatment drug Epidolex. This large merger shows that pharmaceutical companies recognize the values and the potential in cannabinoid-based medicines.
Another area of opportunity is to invest in a cannabis REIT. In its simplest term a REIT is a Real Estate Investment Trust. It is a conglomerate that carries certain tax benefits, but, in order to be classified a REIT, it must distribute at least 90% of its taxable income to shareholders. Most REITS pay out 100% to its shareholders after deducting management fees and other fees and taxes.
This can create a great investment strategy, as they tend to offer some of the best dividend payouts and allow you to diversify your investment into real estate assets. Some popular cannabis REITS are Innovative Industrial Properties (IIPR) which focuses on acquisition, ownership and management of specialized property leased to medical-use cannabis facilities. Another popular cannabis REIT is Zoned Properties Inc (ZDPY). Zoned Properties Inc is a real estate development company that engages in the operation, lease and management of commercial properties in the USA. It primarily provides specialized real estate and sustainability services for clients in the regulated cannabis industry and advisory services related to commercial properties.
Lastly, if you are into the crypto space there have been several cannabis coins that have been introduced into the market. To understand how the cannabis coins started, it all has to do with the banking regulations. Canna Coin was first created to bypass all the banking regulations and allow a platform for businesses that were unbanked to have access to money through DeFi and crypto currencies.
Unfortunately, none of the coins really caught on as gas fees (transactions fees imposed by the coins) and the volatility of the prices in the coins made it difficult for businesses to fully move over to a crypto coin wallet to conduct their business.
Despite these struggles, there are a handful of different cannabis coins that have been created with the intentions of becoming the leader in a cannabis crypto currency. The top four cannabis crypto coins are POTCoin (POT), CannabisCoin (CANN), DopeCoin (DOPE) and HempCoin (THC). These investments are highly speculative and are all subject to regulatory, and systematic risks that can be associated with these coins as crypto currency is currently a hot topic with the government and are currently adding more regulations to control and regulate the way these assets move and behave.
Therefore, if investors wish to invest in the future currency of cannabis, they should look at the blockchain and the technology on which these coins are built, as this will be an indicator as to whether these coins can be mainstream or not.
Neema Mahdavian is an experienced entrepreneur with ventures in cannabis marketing, tech, crypto NFT Marketplace and several other ventures in the educational and chemical manufacturing space. He started his career in finance, with a background in banking and corporate finance. He has also dabbled in politics and currently resides in Los Angeles and San Francisco, Neema has a passion for doing what is right and being a part of the solution.
All investment strategies and investments involve risk of loss. Nothing contained in this article should be construed as investment advice. Please consult a financial advisor or professional.