Factors to Consider Before Investing in a Cannabis Business

Investing in a cannabis business

This article is for savvy investors who have already completed their research and heard the 99 horror stories for every one success story.

Investing in a Cannabis Business

Cannabis and hemp are industries where investment and ROI opportunities are limitless. It is hard to overlook the global market expansion, the U.S. expansion, and the expectation that the industry will do over $84 Billion dollars in 2028 as an investor. The federal government has approved medical cannabis programs in 36 states so far, and 16 states have approved adult-use marijuana programs. Five more states approved cannabis programs during last year’s election. 

In the legal cannabis industry, we have over 100 years of experience under our belt. Investments can be made in these areas because we understand when, where, and why to make them. If you’re going to be successful, you’ll need to be creative when building relationships and gaining traction. Unless there’s some innovation and ingenuity involved, none of these deals will succeed. In the following text I will provide some great pointers for those seeking to invest in one of the world’s fastest growing industries! 

How Cannabis Is Sourced And Distributed 

Those who are new to the cannabis industry may find it difficult to invest in the cannabis supply chain at the right time. It requires the ability to forecast where the market will be in the future, not just where it is now. Those thinking about entering California’s or Oklahoma’s cannabis market may want to consider a few things: How many licenses have been granted? Does licensing at the local and state levels present any challenges? 

It is important to ask these questions because they enable us to see where the market is heading. According to state licenses awarded to cultivators in 2015, there have been several market saturations that show how quickly an unregulated market can become overcrowded. Check out Homegrown Cannabis Co.

Comparatively, markets such as CA, which govern the world’s sixth largest economy, are much more bureaucratic and involve local RFPs. Local governments and the state government have had time to collect inventory and cash flowing through these facilities because things have slowed down.

Investing In The Cannabis Industry 

In the cannabis industry, you can get creative in many different ways if you’re inclined toward venture capital. Investing in new competitive states, buying distressed opportunities that don’t require much diligence, or investing in a small startup or ancillary business are all options. The timing of each of these options must be right, otherwise, the squeeze will not be worth it!

There is always competition for cannabis licenses in competitive states, but you shouldn’t assume that because you have lobbyists and a pocket full of cash, you will automatically get a license. Depending on the type of license and the location where you will apply, these permits can be worth up to 100 million dollars, which is why they require very thorough applications and very specialized expertise.

Distressed Cannabis Businesses

A distressed cannabis opportunity is, well, a distressed opportunity. The result is the same as purchasing a house at a foreclosure auction and finding out that the foundation and plumbing are bad. Your nightmare has now come true! Due to the distressed state of this business, it will attract other motivated cash buyers, resulting in little time for due diligence. Act quickly if you want to avoid losing your money. Unless you get it, someone else will. Money made from scares cannot make money. The missed opportunity may seem like a missed opportunity to you, just like I looked back at not buying bitcoin in 2010!

Cannabis Markets That Are Becoming Legal 

Emerging markets offer great investment opportunities, but getting in at the right time is the key. According to investors, first to market is the best strategy when it comes to new markets. In this case, you are a year ahead of the next company if you have everything in place. This may be true, however, in a market predicted to be very competitive, many companies will find their initial success limited. Rushing into the market with a product that is mediocre can also damage a company’s reputation. 

Investing in the cannabis market – when is the right time? 

The timing of everything is crucial! Cannabis is no different from cryptocurrency, real estate, and other markets in terms of getting in at the right time. Cannabis stands out from other industries due to its novelty and differences in regulations and public acceptance domestically and internationally. With disparate models and programs, entering an emerging industry can be difficult to understand risk and reward. 

How should investors choose between the various cannabis industries? 

Due to cannabis’ global popularity, finding the ideal location for a startup has proven difficult. The global market will grow, but how will that happen? Which product types come from where? What is their mode of transportation? In terms of predicting which markets will prosper and which will fail, predicting the cannabis market can present a challenging situation even here in the United States. Are there any sectors of these markets that have the greatest potential for growth? It is difficult for someone new to the market to become familiar with every aspect of the sector, but a trusted advisor, like Higher Yields Consulting, can help you pinpoint the “where” and identify the opportunities within each sector.

An overview of the 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 like this. 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 

Where does the industry go from here? What are the chances of federal legalization? Decriminalization by the government? Currently, the Republican and Democratic parties cannot seem to agree on how to proceed with this plant, while we see a lot of movement at the state level. In previously smaller competitive markets like Illinois, new medical programs appear, previous medical programs transition to adult-use programs, and additional rounds of licensing are ongoing in previously smaller states. 

No matter how strategically you invest, or approach your business, you will not guarantee success. Achieving a “pie in the sky” ROI requires knowing when to act and where to place capital. If you know where to look, you can find the answer. We track and develop opportunities for clients around the clock throughout the U.S. and around the world. We offer our clients financial freedom and success by leveraging our experience and knowledge of finance and investment.

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