The cannabis industry is smokin’ right now. Between medical and recreational marijuana, sales are on track to top more than $3 billion this year, according to the Marijuana Business Factbook. And if you include revenue generated by ancillary companies (manufacturers who create plant-harvesting machinery, lawyers who represent growers, CPAs and accountants who advise startups), the numbers soar to somewhere in the $9.6-$11 billion range — nearly double the 2013 total of $5.7 billion.
What makes those numbers even more impressive is that this burgeoning market is still in its infancy. Just four states plus Washington, D.C. have legalized recreational marijuana so far, and only half the country allows medical marijuana — but others are expected to follow suit in the coming years. Translation: It might be savvy to nab a piece of the pot pie while the trajectory is on the upswing. After all, high-profile investors, from Snoop Dogg to Silicon Valley big shots (like Peter Thiel, co-founder of PayPal) are getting in on the action.
“Assuming current trends continue, this is one of the best financial opportunities that most people will see in their lifetime,” says Chris Walsh, managing editor of Marijuana Business Daily. “It’s very rare to have a brand-new industry crop up that has this much potential and is moving forward so quickly. Marijuana has the potential to become one of the powerhouse game changers in the history of American businesses, akin to the advent of high tech and automobiles.”
That said, along with the massive rewards at stake, there are a host of risks involved when venturing into uncharted, highly polarized territory. Here’s the 420 — er, 411 on how to make the most of the opportunities without putting your entire bank account on the line.
Cater Your Skillset to the Cannabis Crowd
Marijuana may seem like a specialized field, but weed-focused businesses have all the same needs as any other: HR, public relations, construction, IT, you name it. As such, whatever your background, chances are good that your experience would benefit a ganja-based company.
“Any service or product common in the business world at large can be applied to the cannabis industry — and almost everyone with a professional skill can find an opportunity,” says Walsh. “Look at me: I have a background in business journalism. When I first accepted my current position, people thought I was crazy, but now I’m working for a growing company with 20 employees.”
And you don’t need to move to the Rockies to score a job. As long as you’re not touching the merchandise — think: growing, baking, shipping — you can work for the cannabis industry from anywhere. (If you do want to deal with the plant itself, you need to apply for a license, and each state has a different set of regulations regarding how long you have to have been a resident first — in Colorado, it’s two years; in Washington state, three months.)
Like any field you want to break into, networking is the best way to do it. “I’ve talked to countless entrepreneurs and often hear that you should start by going to cannabis industry events to meet people in the field and get a deeper understanding of the business,” says Walsh. A couple of reputable ones to try are the Cannabis World Congress & Business Exposition and the Marijuana Business Conference & Expo. Also check out Women Grow, a professional networking organization aimed at women who are either in the cannabis industry or hoping to enter it. It has chapters in 26 states and holds monthly meetings.
Or, If You Want to Start Your Own Business…
The next step up from simply offering your services to weed-friendly companies is to launch your own business. That’s what Olivia Mannix and Jennifer DeFalco, co-founders of Cannabrand, a full-service advertising agency devoted to the marijuana industry, did. For years, they’d owned a traditional marketing agency based in Colorado, but as soon as recreational marijuana was legalized in January 2014, they established a separate company focusing solely on weed, in addition to their more conventional firm.
“We could see that this field was going to be very lucrative, and we launched right away because we wanted to be the first in the market, and to prove our dedication and support,” says Mannix. “Our goal is to rebrand cannabis, taking it out of the counterculture and into the mainstream. We want to show the world that it’s acceptable to enjoy cannabis the same way you’d enjoy a glass of wine after work.”
While it paid off for them — according to Mannix, Cannabrand has been growing at a rapid pace, drawing ample revenue — this isn’t a decision you should make on a whim. “I wouldn’t advise anyone to just quit their current job and jump into this,” says Walsh. “First, you will need to spend months doing research to understand the market and the factors that influence it.”
You also need time to foster strong connections to key players. “This is a tough industry to crack, and most cannabis companies want their vendors to be very familiar with the inner workings,” Walsh points out. “If you’re a novice, chances are you’ll end up spinning your wheels and won’t get many clients.”
A smarter route may be to start by taking on a couple of cannabis clients, and gradually growing that revenue source into a new division or spin-off. Just be mindful that getting your hand into the green could jeopardize existing business relationships — which is one reason why Cannabrand decided to create a totally new agency rather than a new branch of their existing firm.
Another way to get a piece of the action that doesn’t require revamping your career path is to invest in a company with potential via an angel investment network (The ArcView Group is one of the top in the industry) or a private equity firm, like Privateer Holdings, which recently landed $75 million in investments from the Silicon Valley–based Founders Fund. “Big money is starting to get involved,” says Walsh. “Investments last year reached between $100 and $200 million, compared to tens of millions just two or three years ago.”
Again, the best strategy is to meet budding entrepreneurs at business-oriented industry events. Then keep your radar up for savvy startups in segments that are red-hot. According to a survey by the Marijuana Business Factbook, the most popular areas where investors are funneling funds include cultivation operations, dispensaries, ancillary service firms (namely, marketing, advertising, and consulting), and edibles.
Topping the next wave of in-demand sectors are marijuana cultivation technology and equipment (particularly lighting), and inventory tracking software. While consumption devices, from pipes to vaporizers, are also booming, the market is getting flooded quickly, so paraphernalia businesses have to really stand out in order to make it.
In addition, packaging is big because states are beginning to set standards for how cannabis products are displayed (ingredient labels, not appealing to children, etc.). Same goes for testing technology firms, since new regulations require that products be verified for potency and contaminants.
Avoid buying stocks for now. “There are about 150 publicly traded marijuana companies, but most of them are penny stocks that are likely to be scams,” warns Walsh.
Are You Up for the Challenge?
Not to kill your buzz, but before getting on board you need to be aware of the unique challenges the cannabis scene presents.
First, the legal red tape can be a nightmare to wade through. “The industry is incredibly fragmented, with rules that vary by state or even city,” says Walsh. “The regulations can be completely different from one market to the next, and you need to curate your business to be in line with each of them.”
Plus, since marijuana laws are so in flux at the moment, regulatory changes can happen overnight. If you don’t have a thorough understanding of the system and haven’t prepared a backup plan to help you weather the volatility, you can be pushed out in 24 hours. With that in mind, Colorado and Washington are the safest bets for entrepreneurs, since the highly regulated markets there are more stable than, say, California, where the conditions are constantly shifting.
And don’t forget that we’ve got an election year coming up. “If we get a conservative in the White House or the Fed changes its tune, they could crack down on the industry,” says Walsh. “By now, I think the genie is out of the bottle, but a change in administration could still stifle growth to some extent.”
Banking is another big barrier. Most banks won’t open accounts for companies that come into direct contact with marijuana because it’s federally illegal and they don’t want to lose their charters. “As a result, many stores and dispensaries don’t accept credit cards, so a lot of companies are conducting business mostly in cash, which presents new hurdles,” Walsh says.
While getting involved in medical marijuana is less dicey from a legal standpoint, because it has a longer track record and is tied to health care, the long-term growth outlook isn’t nearly as great. “Recreational marijuana is the behemoth; it has the potential to become a global market,” Walsh says. “Before long, we’ll start to see national and household brands develop, the same way we did with alcohol and tobacco generations ago. But it isn’t for the faint of heart and there will be casualties along the way. Don’t expect to make millions overnight.”
Like anything, high rewards go hand in hand with substantial risks.