Investment Opportunities In Cannabis
Over 40 local investors from the San Diego area came to join us for our Lunch and Learn series where we discussed all things investing and how to “Protect Your Equity” in any investing situation. For this series, we partnered with MedMen, one of the largest institutional funds in the cannabis investing arena.
It was with great delight that former Wall St. veteran Chris Leavy, who is now a partner and Chief Investment Officer at MedMen, discussed the upcoming opportunities within the cannabis space, and the current regulatory situations and hurdles that reside when investing capital. And although we would love to go in depth as to the current returns investors are obtaining with funds like MedMen, it’s not something we can cover readily in this blog post. We do intend to cover the opportunities that are sure to come to investors in the future. (contact us for more information)
The Growth Of the Marijuana Market.
With any opportunity, the risk vs reward in an investment is proportional to the perceived risk of the investment. And in the cannabis space, this risk has been loosening its grip every year. More and more states within the United States are either writing laws to open up the recreational and medicinal use of cannabis or have already legalized the use of it.
When States See An Opportunity, So Should Investors.
In fact, Colorado, one of the first to legalize marijuana in the State, has seen a jump in tax revenues exceeding $100,000,000 dollars. With these kinds of revenues, you can be sure, that most, if not all, cash strapped States see this as an opportunity, rather than something to shy away from.
The Size Of The Market Today.
Comparatively, to other financial markets, the cannabis market is quite small and underdeveloped.
With any new industry there comes the opportunity to invest in what would we would consider being a growth market. In fact, according to fund managers at MedMen, the size of the market in 2016 roughly totaled 6 billion dollars for legal sales. That number is projected to grow to 50 billion by 2026 in legal sales. That means States who will be collecting tax revenues, will, in essence, catapult the cannabis industry onto the main stage of commerce.
Several Interesting Regulations To Watch.
The Rohrabacher-Farr Amendment prohibits the Justice Department from using federal funds to prosecute State-authorized medical marijuana programs. The bill must be re-authorized with each budget bill and was recently re-authorized in April 2017. Again, the risk here is that laws can always be overturned, and as investors, one should always understand that this can happen. In fact, Attorney General Jeff Sessions recently appealed to Congress to let him prosecute medical marijuana providers and has asked to repeal the Rohrabacher-Farr Amendment. So here we are, stuck in limbo between States seeing opportunity and windfall tax revenue, and the federal government either being silent or outwardly spoken when it comes to legalization of cannabis.
When The Tides Turn, A Market Is Created, But Politicians Follow.
Currently, 60% of Americans support legalization of marijuana, and 2/3 of Americans live in states where marijuana is legal in some form. 71% of voters say the government should not enforce federal laws against marijuana states that have legalized medical or recreational use. (Source MedMen – Gallup, Quinnipiac University, Bloomberg)
When you have this much support from local constituents in each state, regulation typically flows from the bottom up rather than the top down. Local politicians always want to please their population base, and in essence get more votes. If voters are in favor of the regulated use of cannabis, we believe this only confirms the tide has turned in favor of growing this industry as a legitimate business.
States That Have Legalized Cannabis Have Seen A Reduction In Healthcare Spending.
It’s no secret that Healthcare is, and continues to be, a major talking point when it comes to figuring out ways to save money. One of the most fascinating parts of our Lunch & Learn, was when Chris Leavy, discussed the States with legal cannabis laws, have a reduction in opioid prescription painkillers, a 25% reduction in overdoses, a decrease in opioid fatalities, and a savings of $165 million in Medicare prescription spending (Source: MedMen – aphapublications.org, jhsphe.edu) In fact, it was said that one of the largest backers to defeat the legalization of medical marijuana happens to be the pharmaceutical industry. (See article here)
Investing In Cannabis Ranges Across The Board
When you take all of this into consideration, the regulatory laws, the legalization of some states, the favor of the greater population towards legalization, and the benefits to those in pain or who suffer from a chronic illness, we start to see a new budding environment to deploy capital in. These can span the following –
- Cannabis Real Estate holdings
- Operations companies and fulfillment
- Technology firms related to cannabis
- Agricultural operations
- Funds that invest in cannabis
We sincerely, hope that you enjoyed this article, as always speak with your adviser or counsel when considering any investment. And if you have any upcoming real estate deals, business deals, or investments you want us to take a look at, please schedule a call with us today.