Investors Are Getting Involved In Marijuana Companies. Here’s Why.

For a long time, investors have been wary about getting involved with the marijuana industry. Even as more and more states started to legalize cannabis, its federal designation as a Schedule 1 narcotic convinced many investors to steer clear of entrepreneurs seeking to legitimize it––despite its immense economic potential.

In recent years, however, the stigma surrounding marijuana has started to splinter, and investors from all over the country have begun to see legal marijuana as an opportunity they can’t afford to pass up.

In fact, investors aren’t just growing less apprehensive––the whole landscape is shifting.

This is something I’ve experienced firsthand as the founder of DAMA. Momentum is building, and pretty soon, companies who’ve worked hard to become compliant in their respective states will have investors clamoring to partner with their marijuana businesses.

Here’s why.

Marijuana bears unique and proven economic potential.

The most influential reason investors are warming to marijuana is simple: no other industry is as ripe with economic potential.

This reality is becoming harder to ignore. Right now, despite the fact that it’s only legal in eight states and the District of Columbia, marijuana is a $10 billion industry.

But in the black market, it’s a $50 billion industry. What this means is that as more and more states legalize marijuana, its economic potential is only going to grow. After all, there’s a pre-existing market of consumers eager to buy.

Investors know this. But perhaps more importantly, investors have seen what happens in states where marijuana has been legalized. In places like Colorado or Washington, marijuana has become a powerful engine of economic activity, producing jobs, tax revenue, and return on capital for private companies.

It’s likely that what happened in those states will be replicated in others that have only recently legalized marijuana, like California and Massachusetts. Since those markets are still in their infancy and lack defined industry leaders, investors who partner with marijuana companies in those states will have an opportunity to actualize serious returns and capture a significant share of their respective markets.

Investors don’t want to miss out.

Right now, the biggest investors in marijuana companies are individuals, private equity funds and family offices––its managers either possessing of a personal interest in the plant or its partners who are OK with the regulatory risks.

But as more of these investors place capital with marijuana companies and the economic viability of marijuana as a business opportunity becomes further apparent, the fear of missing out on potentially massive returns will weigh more heavily on investors’ minds.

In fact, as the potential rewards of investing in legal marijuana become clearer, not investing in these companies—especially out of fear of federal intervention—will become harder to justify.

Let’s face it: fear of missing out on big opportunities is a powerful driver in the VC world. And this industry is perfect for VC’s who require markets that can generate disproportionate and enormous returns.

Savvy investors know that now is the perfect time to invest in recreational marijuana––especially in places like California and Massachusetts. If they wait until those markets mature, it’ll be too late.

 Stigmas about marijuana remain––but they are changing.

Fear of federal intervention and negative stigmas about marijuana won’t go away overnight. In fact, I’ve learned by talking to investors and entrepreneurs at conferences and meetups all over the country that they remain stubbornly powerful.

But there’s reason to believe they’re eroding.

In just the last year or so, the stigma has morphed into something inherently dichotomous. Investors on the whole are still wary of companies who work physically with the plant either as cultivators, manufacturers, or retailers, but they’ve become open to partnering with companies that are helping grow the industry.

And this is just among older, more traditional VCs. Younger, less conservative associates in big VC firms don’t hold the same apprehensions. As these associates rise up in their firms, their more progressive ideologies will prove increasingly influential.

What’s more is that as marijuana continues to become more accepted culturally—and especially as the general population feels more comfortable buying and consuming marijuana in public—investors will feel more comfortable entering the space.

For entrepreneurs, all of this is good news. The more that investors involve themselves in the industry, the more legitimate it becomes––not only in the eye of the public, but in that of the federal government, too.

The important thing to keep in mind is that this isn’t a gold rush.

Investors will not partner with your company unless you’ve branded yourself uniquely and purposefully. It’s not enough to produce the strongest strains––you need a marketing message, web presence, and a formulated plan illuminating how and why your business is different than everyone else’s. Investors will insist upon this just as they do in every other industry.

Likewise, investors will not partner with you if your company isn’t compliant with state regulations. No investor will be interested in your company if, on top of federal fears, they have to worry that you’ll be shut down by the state because you haven’t completed the necessary permits or obtained the required licenses.

The times are changing. Momentum is building. If you position yourself correctly, now is prime time to be building a marijuana company.

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