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Why Cannabis

The Investors Dream

Every investor dreams of investing in a paradigm-shifting product or technology long before the market realizes its potential. The problem is that these opportunities are only clear in hindsight. In the mid 2000s, Facebook was run by a couple of ivy league dropout students. Back then, no one could reasonably have expected that it would now be worth billions today.

Cali Green Equities is ahead of the technology curve with investment opportunities and insider knowledge to succeed in the legal cannabis industry.

A Push For Legalization, A Wave of Demand

In 2012, Colorado and Washington became the first states to fully legalize recreational marijuana. Two years later, the legal marijuana market (which includes sales in medical-use markets such as California) is earning $2.7 billion in revenue. At 74% growth year-over-year, cannabis outpaced every other industry in America in 2014.

Compared to other new industries, such as personal computers or e-commerce, legal marijuana’s strong performance out of the gate was no surprise to analysts. Not only has it profited enough to aid in education, but a major decrease in crime has also been reported in Colorado where marijuana was first legalized.

There’s already a well-established demand nationwide as 12% of the U.S. population reports using marijuana in the preceding year, a figure rises to nearly 20% in some jurisdictions like Washington, D.C. and Rhode Island.

Measuring The Potential Market

It is a challenge to measure the potential of a market that is only recently seeing the light of day after decades in the shadows. Before the first states legalized recreational marijuana, CNBC reported that estimates of the total US underground market range anywhere from $10 – $100 billion. Early post-legalization results indicate that the actual figure may meet or surpass even the most optimistic estimates.

Cannabis industry analytics firm New Frontier projects the legal market to exceed $15 billion in revenue by 2020, up from $4.7 billion in 2015. With a compounded annual growth rate of 27%, the cannabis industry is one of the fastest growing industries in the economy, growing faster than the internet media and biotechnology sectors – two of the best-performing areas of the economy.

New Frontier estimates that the legal cannabis market in California alone will represent a nearly $7 billion opportunity by 2020, making it the single largest state market in the country.

The World of Weed

Investors who view cannabis as simply an intoxicant are missing the bigger picture. Yes, legal marijuana can and will compete with alcohol for the consumer discretionary dollar, but the cannabis plant is also a medicinal and industrial powerhouse.

The medical case for cannabis has been made time and again, with patients across the nation pleading with elected officials to ease restrictions on the plant. Despite initial claims that medical marijuana was just an excuse to evade the law, today public figures as mainstream as CNN’s Dr. Sanjay Gupta acknowledge cannabis’ properties as an analgesic (pain reliever), antiemetic (nausea suppressor), and anticonvulsant (inhibitor of seizures). For conditions such as cancer and epilepsy, medical marijuana can mean the difference between life and death.

Several pharmaceutical companies have isolated the active ingredients in cannabis for use in popular prescription drugs, such as Sativex, Marinol, and Cesamet. However, there is little practical reason for patients to pay Big Pharma to produce pills of a substance that literally grows like a weed where permitted. This market is ripe for the taking by newly legal US cannabis investors and cultivators.

Venture Capital Swarming

With clear growth potential, money is already pouring into legal cannabis production. Institutional investment tripled from an estimated $50 million in 2013 to $150 million in 2014. The ArcView Group, the leading cannabis-focused angel investment group, has seen their membership swell by 400% since January 2013.

Renowned investor Peter Thiel co-founded PayPal and made the first outside investment in Facebook. He gained his reputation by spotting early opportunities for outsized returns. Thiel’s Founders Fund recently contributed to a $75 million round of funding for Privateer Holdings, a private equity firm focused on the legal cannabis industry. This is a major move into the market from an institutional player, and a significant vote of confidence that legal cannabis is here to stay.

All of this is happening in an environment in which only five states have full-scale medical marijuana operations and only two states have active recreational dispensaries. However, 23 states have authorized the use of medical marijuana and four states plus Washington DC have created a legal pathway for recreational sales. As these other states roll out their operations, Duchess Capital Research estimates that the industry could see $1.7 billion in capital expenditures alone over the next 18 months.

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