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Cash In on Cannabis: Emerging Business Opportunities in the Industry

Cash In on Cannabis: Emerging Business Opportunities in the Industry
Credit: Lumppini/Shutterstock

The cannabis industry has exploded in size and scope as more states moved to legalize medicinal and recreational cannabis last year. In 2016 alone, the industry brought in $6.9 billion, which represented a 30 percent increase over the previous year, according to Arcview Market Research. That number is projected to increase to $21.6 billion by 2021.

So, is 2017 the year that you should get involved in the cannabis industry? Here's a quick overview of the current market, along with tips and ideas from industry professionals to help get you started.

The cannabis industry seems unstoppably ascendant at the moment. Medicinal marijuana is now legal in 28 states plus D.C., while recreational marijuana is legal in eight states plus D.C., which opens the doors for a lot of new business opportunities.

"There is a lot more to happen as far as development in industry," Ben Larson, co-founder of cannabis-focused accelerator Gateway, told Business News Daily. "Now is the time to get in." [See Related Story: 4 Cannabis Entrepreneurs Leading the Industry's Evolution]

However, there are some question marks around regulation and enforcement. Federally, cannabis remains an illegal, Schedule 1 substance and enforcement practices are ultimately subject to the whims of the presiding administration.

Federal prohibition also presents some issues when it comes to banking, leading major institutions to often hesitate when cannabis businesses apply to open an account or seek financing. Moreover, Attorney General Jeff Sessions has historically expressed hostility toward legalized cannabis. That means there is some uncertainty on the horizon that should be considered before you commit to any large investments.

Currently, the Department of Justice's Cole Memorandum is the guiding enforcement document, which essentially states that the federal government will defer to state law except in specific cases, such as selling cannabis to children or dealing with organized crime. Many within the industry believe that this will continue to be the standard by which federal prohibition is enforced.

"There's been no action against folks since [the Cole Memorandum was issued]," David Feldman, partner at law firm DuaneMorris, said. "Congress has since added to the annual appropriations bill amendments directing no federal dollars be used to interfere with people complying with their state laws."

And if the cannabis industry is allowed to grow unabated, there will be billions more up for grabs in the coming years. As the industry matures, getting started will become increasingly more difficult and cost prohibitive. A gamble now could potentially pay off later.

"I still believe the industry is going to continue to be one of the largest growth markets in the nation," Matt Hawkins, founder and managing principal at private equity firm Adjacent Capital, said. "We'll probably see some surprise states open up in the southeast, and in the next two or three years, we'll see upwards of 40 plus states with some type of medicinal law in place."

Launching a company that cultivates or sells cannabis can be quite expensive after navigating the licensing and regulatory landscapes, which can be discouraging to entrepreneurs wanting to enter the industry. However, like any other industry, there are plenty of ancillary businesses in the cannabis space that are essential to maintaining and improving the current industry standards.

Larson's startup accelerator Gateway works mostly with these companies. Instead of working with "traditional" cannabis businesses like growers or dispensaries, Gateway works with companies like GrowX, an ag-tech company focused on delivering a high-efficiency, artificial intelligence-controlled aeroponics system.

J.P. Martin, co-founder and CEO of GrowX, believes that, long-term, the cannabis industry will be "a race to the bottom, where companies focused on efficiencies and margins will survive." The endgame, Martin said, is to reduce waste in the growing process and monitor conditions with AI, enabling cultivators to deliver precisely the level of care needed at precisely the right time.

Not every business emerging in the space is so high-tech, though. Gateway also works with a company called Good Co-op, which is focused on delivering high-quality edible treats infused with cannabis.

Good Co-op sources the best ingredients they can find, just as if they were creating any other gourmet treat. The result is a low-dosage cannabis brownie treat that tastes like dessert and accommodates even the most tepid first-time user.

"In 2017, we expect 14 million people to try cannabis for the first time," Peter Cervantes, co-founder and R&D chef, said. "All those individuals will want a low dose, because they aren't sure what their tolerance is. We want something that is easily accessible, and not confusing or intimidating."

GrowX and Good Co-op are both different degrees removed from the plant itself; Good Co-op uses cannabis directly in its product, while GrowX is entirely on the periphery, but neither actually grows or sells the plant itself. There's a huge sea of possible businesses that occupy this arm's-length space in the cannabis industry. Whether its software solutions, like "the Yelp of cannabis" Weedmaps, or something more simple like contracting or distribution companies specializing in the cannabis industry, there are still plenty of opportunities to get involved.

According to Hawkins, who manages a cannabis fund invested in a dozen diverse companies, some sectors of the industry are lacking and ripe for newcomers to step in. One such area, he said, is distribution.

"One of the major opportunities in the space … is a pure distribution model," Hawkins said. "Right now there's really just wholesale and retail, without much in between."

Larson agreed: "A company we've not yet been able to work with is someone actually doing the physical distribution; something like the FedEx of the industry."

Another area that's lacking in the industry at large is education. Whether its training employees on the proper protocols and the regulatory environment or educating consumers on cannabis itself, there is currently a void that needs filling.

"We'll need something similar to the educational messaging you see for alcohol and tobacco," Hawkins said.

For Feldman, there's still plenty of time for aspirational startups in every sector to get in the game. The industry is still young and growing, meaning opportunities still exist and new ones will appear as it matures.

"We're about two years away from being too late to get in early," Feldman said. "It's not too late to be a newcomer to this industry. What you want to do is, like in any other new business, learn about the industry as much as possible first."

As time moves on, Larson said expect some consolidation in the industry. However, that shouldn't discourage startups with innovative ideas in sectors like software, biotech and even hardware solutions like lighting or climate control systems.

"Most certainly there will be consolidation; in three to five years, we'll see a lot of mid-sized companies wrapping up smaller companies," he said. "And we get a lot of questions like 'Am I too late to enter the industry? Are the good ideas done?' We're just at the beginning. If this is a baseball game, we're in the second inning."

If owning and investing doesn't interest you, jobs within the legal cannabis industry are plentiful. Jobs in the industry are diverse and range from $12 per hour to more than $100,000 per year, and the growing demand for labor is expected to continue rising through 2020. A report from industry analyst New Frontier Data projects the cannabis industry will create 250,000 jobs by 2020. Jobs boards like 420Careers and WeedHire can help connect prospective cannabis industry workers with open positions.

Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.