In the cannabis and hemp industries, the sky is the limit for investments and ROI. The industry is currently expanding into global markets, sweeping across the United States, and expected to do over $84 Billion dollars in 2028, it’s hard not to be watching this as an investor. Currently, 36 states and the District of Columbia have medical cannabis programs and 16 have established Adult Use programs. In last year’s election, 5 more states voted for new cannabis programs.
For savvy investors who have already completed their research and heard the 99 horror stories for every one success, this article is for you. At Higher Yields, we have over 100 years of combined experience under our belt in the regulated cannabis industry. We understand where to invest, when to invest, and why to invest in those areas. To be successful, you have to be willing to get creative to develop relationships and gain traction. None of these deals are going to be a home run without some ingenuity and innovation. I will lay out below how to access the market and provide some great pointers for those looking to provide capital in the fastest growing industry on the planet!
When to invest into the cannabis market?
Timing is everything! Cannabis is no different from Crypto Currency, Real Estate, or many other markets; you’ve to get in at the right time. One of the most significant differences from other industries is the novelty of cannabis, as well as the differing types of public acceptance and regulations domestically and internationally. These disparate models and programs can make timing difficult and can undoubtedly strain the understanding of risk and reward when moving into an emerging industry.
The Cannabis Supply Chain
Investing into the cannabis supply chain at the right time can be difficult for those new to the industry. It involves the ability to predict where the market is headed, not just where it currently resides. For example, if you are looking to enter into the cannabis market in California or Oklahoma, you may want to consider a few things; How many licenses have been issued? How difficult is licensing at the state AND local level? These are essential questions to ask because they paint a picture of where that specific market is headed. The progressive 2015 awarding of licenses to cultivators in Oregon showed new states how quickly a market with little regulation could become very saturated. In contrast, markets like CA, which regulate the sixth-largest economy globally, have seen a lot more bureaucracy and merit-based RFPs at the local level. This has slowed things down and allowed local municipality government and the state government to get a hold of inventory and cash moving through these facilities.
Cannabis Benchmarks US Spot Index 2015-2017 (Courtesy Cannabis Benchmarks)
Venture Capital in Cannabis
If you’re more of the venture capital mentality, there are many different options to get creative in the cannabis industry. For instance, one can invest in applications in new competitive states, jumping in on a distressed opportunity with little time for diligence, or even invest in a small startup or ancillary business. All of these are great options, but the timing must be correct, or the juice won’t be worth the squeeze!
Cannabis applications in competitive states: States with competitive cannabis licenses are always on the horizon but don’t think because you have a few lobbyists and a pocket full of money, you’re a shoo-in. These permits, once issued, are worth 1-100 million dollars, and the thoroughness and requirements of these applications are strict and require very niche expertise depending on the type of license and the location in which you will be applying.
Distressed cannabis businesses: Distressed cannabis opportunities are, well, distressed opportunities. With little to no due diligence, this is no different from purchasing a house at a foreclosure auction, which turns out to have a bad foundation and plumbing issues. Surprise, it’s now your nightmare! Since this business is distressed, it will bring other motivated cash buyers, provide little time for due diligence and understanding of the current situation. You will have to act fast. Scared money doesn’t make money, and if you don’t get it, someone else will. You may look back on that missed opportunity like I look back at not buying bitcoin in 2010!
Emerging Legal Cannabis Markets
Emerging markets are great options for investment but when to get in is the question. Most investors believe that first to market in a new market is the route to go. If you have everything in place, you know what you’re doing, and you’re ahead of the following company by a year. Although this may be true, in a market predicted to be very competitive the initial pop could be short-lived, not to mention rushing into market with a mediocre product can significantly affect a brand’s reputation.
Emerging States from the 2020 Election
Where do I invest in the Cannabis Industry?
In the United States and around the globe, there is much activity surrounding cannabis; it’s hard to pick that perfect area to jump in. The global market is going to be huge, but what does that look like? How does one get involved and how do different types of products move around the globe? Even here domestically in the United States, cannabis can be challenging to determine which markets will survive and falter. Which areas of those markets are the most lucrative and how long will those booms last before a crash? Getting familiar with the “goings on” of cannabis in all areas is almost impossible for someone new to the industry, but with the right trusted advisors like Higher Yields Consulting, you can quickly identify the “where” while also understanding the potential opportunity of those areas.
Cannabis Supply Chain
You’re ready! You’ve got your money, you’ve selected the state you’re going to operate in, and you know the product you want to bring to market. Investors have to ask themselves a few questions before pulling the trigger on this; Is this sector of the supply chain saturated already? How quickly can I get to market and what will the market look like by then? Will this product and brand last in this market? The supply chain can be tricky. Without an experienced advisor on your side, making the projections without knowing what’s going on in multiple aspects of the territory/state program can be challenging.
Venture Capital in Cannabis
Nothing better than winning big on the blackjack table. To place chips down and let the dealer lay the cards out in front of you, 21! Yes! Blackjack and cannabis are a lot of like in this way. Where you sit at the table will determine more about the outcome than how much you bet or how you play your hand. Investing in cannabis in Massachusetts is probably a better bet than investing in cultivation in Colorado. Why? They are different decks of cards, other players, and where you sit in the game is essential. If you sat down at a hot deck in cannabis, it might look like the opportunity in Massachusetts two years ago. Massachusetts’ cannabis market is quickly growing as the only Adult–Use state on the East coast. If you showed up to a slow deck with a small stack of chips, that might be more similar to showing up in Colorado today hoping to open a 5,000 sq. ft cultivation. You’re not out of the fight, but it’s going to be a David and Goliath type match-up.
Emerging Legal Cannabis Markets
What’s next for the industry? Federal legalization? Federal decriminalization? While Republicans and Democrats argue over the fate of our country and this incredible plant, we see a lot of movement at the state level. New states are opening up medical programs, old medical programs are turning to adult-use programs, and there are additional rounds of licensing in previously smaller competitive markets like IL.
This industry will have twists and turns no matter the strategic investment made, or approach taken. But knowing where to look, when to execute, and how to place the capital is crucial to gaining that “pie in the sky” ROI. It’s out there; you just have to know where to find it. Here at Higher Yields Consulting, we work day and night to track and develop opportunities for our clients throughout all of the United States and into global markets. We understand and have the experience to provide our clients with the vision and foresight to guide them through their journey to success and financial freedom!