Drugs

After ‘Year of Pot,’ Cannabis Industry Is Worth Serious Cash

A look at the latest in potrepreneurship.

Last month, hundreds of visitors mingled outside three conferences being held side by side in New York City’s massive Javits Center. Sharing lines for lattes with their neighbors from the Salesforce and International Franchise Expo meetings down the hall, attendees of the Cannabis World Conference & Business Exposition could only have been picked out of the business casual-crowd by a careful observer thanks to one detail: the green accents on their name badges.

Inside the International Cannabis Association-hosted conference (just one of many such marijuana-themed trade events of late), dozens of exhibitors advertised services and products dedicated to the business of marijuana; namely, how best to develop, manage and profit from “Green Rush” enterprise that’s brought investment billions to several Western states and has been creeping nationwide.

One exhibitor, representing all-things-analytical instrumentation for GenTech, offered passersby colorful marshmallow squares; treats which, he assured visitors, did not contain cannabis. He frowned, saying, “Everyone keeps asking me that.” 

In the past year, the legal marijuana (or cannabis) industry’s slow burn of 2013 has developed into a national wildfire. With a 2014 impact to the tune of $3 billion, legal cannabis’ surge into new forms of capital represents 74 percent growth from the previous year, making it easily the U.S.’s fastest growing industry. Pending likely favorable developments in federal and state legislation, the industry’s poised to keep right on growing – fast enough, perhaps, to warrant $11 billion in trade by 2019, according to market research firm ArcView Group.

"These are exciting times," wrote Troy Dayton, ArcView CEO, in the company’s Executive Summary of its “The State of Legal Marijuana Markets” report. Times in which “new millionaires and possibly billionaires are about to be made.” 

With the massive and relatively brand-new industry touching wallets across the country (inspiring Rand Paul, among other prominent figures, to angle for their own piece), we might ask: who’s behind all that weed? And who’s positioning themselves out front?

Pharma, Big and Small

A wide variety of companies, investors, proponents, and industry-straddling firms are getting in on the trend, including, as Forbes points out, ones that “once had nothing to do with marijuana but changed their product lines to get in on the ground floor of a new industry.” But by far, the biggest financial movers of shake behind the scenes are pharmaceutical and research outfits.

In April, Forbes estimated that companies researching or developing cannabis-based treatments account for $1.5 billion of the marijuana industry’s approximately $3 billion overall might. As recreational and medical marijuana legality improves across the country, companies from around the world are seeking to develop and capitalize on the plant’s medicinal properties, ranging from its established application of treating pain to bringing relief to sufferers of childhood epilepsy. The trend includes an ongoing, and in many ways, unprecedented race to patent new (and smoke-free) delivery systems for the drug, as in the case of a method for containing specially treated marijuana in compressed sublingual tablets.

One of many companies working to plant its feet firmly on the ground floor of cannabis medicine is GW Pharmaceuticals, a British bio-pharmaceutical organized to research, develop and commercialize marijuana-based medical products. On June 10, Forbes reported that stock prices for the firm had “increased by 40% in the past month alone,” likely due to the company’s advances in using cannabis-based treatments for multiple sclerosis spasms and cancer pain. Maryland-based PharmaCyte Biotech, too, is gaining market velocity as a result of its cannabinoid treatments for both cancer pain and cancer itself. 

And while these companies won’t likely be paying out high returns soon, Forbes suggests that many of their long-term investors may be “waiting for the day that all these cannabinoid drugs will be through their various testing phases and on the market shelf” – or when this class of extensively honed drugs “will be a darling of legislators that want medicinal marijuana to be more like traditional medicine.”

The Cannabis Cultivation Boom

While their slice of the pie isn’t as large as the pharmaceutical industry’s, marijuana producers – that is, those who are feeding the industry by growing actual plants or developing new strains – represent a heady $645 million for the cannabis industry in their own right.

Different schools of thought exist about whether or not marijuana currently is, or will become, the largest cash crop in the U.S. One 2012 estimate developed by researchers at several universities puts the overall U.S. revenue from marijuana crops – grown both legally and otherwise – somewhere between $2.1 billion and $4.3 billion. The cannabis-related news site The Cannabist estimates that residents of and visitors to Colorado, one of the country’s prime cannabis centers, consumed 130.3 metric tons of marijuana through October of last year, accounting for around $247 million in recreational marijuana sales but falling well short of corn’s 351.3 million metric tons for the 2013-2014 harvest year. So, while more and more states are permitting lawful cultivation, the revenues from legal marijuana crops still have a ways to go before they overtake other U.S. cash crop stars.

The boom in cannabis cultivation is growing, however, due in no small part to the fact that marijuana is a far more profitable crop for farmers than, say, many of the nation’s favorite veggies. The International Business Times notes that a tomato grower using greenhouse facilities “might earn roughly 10 percent profit on [the crop’s] revenue, before operating costs, while a cannabis grower in a similar setup could rake in as much as 80 percent,” giving growers a lot more wiggle room as they experiment with the most profitable and sustainable methods for cultivating this newly okay’d crop.

In addition to developing the best greenhouse gear, many groups within the agricultural industry are hard at work trying to patent particular strains of marijuana before legalization causes the growing boom to go full supernova. In the past year already, the average retail price of marijuana in Colorado has dropped by about 22% as more and more growers get in the game.

“Cannabis is spurring on an ag-tech revolution,” ArcView’s Troy Dayton told the site. “The market is already there, it’s just moving from the shadows into the light. That’s why you’re seeing this incredible growth and why so many people see it as a once-in-a-lifetime [business] opportunity.” 

The effects of the cannabis cultivation boom are spreading into peripheral areas of commerce as well. Thanks to Colorado’s improved laws for and public opinion of cannabis and its botanical brethren, the state’s hemp industry – supplying a variety of industrial and consumer products – is also experiencing its own renaissance.

With millions being passed around at the pot party, the industry has started requiring its own white-collar service sector. The New York Times reported in February that a Colorado group has been trying to establish the first-ever financial institution specifically geared for handling the money of the legal marijuana industry, which has been forced to operate almost solely in enormous amounts of cash due to federal disapproval of the drug. The bank’s organizers haven’t yet been approved for a Federal Reserve account, but both growers and retailers have plenty of new choices for protecting and managing their cash stores in the meantime. 

The industry also wants to get its legal protections in order, leading to the recent founding of the National Cannabis Bar Association. The organization seeks to establish a “specialty bar association dedicated to providing attorneys in the cannabis industry with educational and networking opportunities to help them better serve cannabis businesses” and has an annual membership cost of $150.

Shabnam Malek, NCBA’s executive director and founding president, explained that “as more and more states decriminalize or legalize cannabis – and set up their own regulatory structures -- the legal conditions cannabis industry clients and their attorneys face are likely to get even more complex before they get simpler.”

The Mainstreaming of Cannabis Culture

In anticipation of the day that brings both nationally legalized cannabis and widespread cultural acceptance of the plant (and perhaps to speed that day’s arrival), suppliers of a growing range of lifestyle and “cannabis culture” products are digging into the consumer market across the spectrum with an estimated industry weight of around $302 million.

As the undisputed hotbed of the “Green Rush,” Colorado has played host to any number of established and experimental consumer product campaigns in the past year or so. Mounting the bandwagon alongside countless other eateries, one Denver bagel shop recently got attention for serving smoked salmon infused with THC. Any number of apps have been cropping up, too, for streamlining marijuana users’ lifestyles.

Though it’s currently privately funded (and typically hosted) by an enthusiastic San Diego retiree, the Golden, Colorado-based radio station KBUD, aka “Smokin 94.1,” which airs pot talk and classic hits, is just one example in a wave of media-makers that are joining and fueling the cannabis culture swell. CBS Denver points out, however, that when KBUD does start to bring advertisers into its business model, it’ll enter that “murky area where the marijuana industry and advertising collide, something not fully favored by the federal government and the Federal Communications Commission.” 

Major green has been swirling around the business of cannabis consumer tech, too, as with personal vaporizers, or “vape pens.” "High-end vaporization is definitely a key trend in the cannabis industry,” ArcView’s Dayton told SFGate. “The joint is becoming obsolete. People want to taste the cannabis in a way that is less harmful. They want to have the latest gadget.” 

The Silicon Valley-based company Pax Technologies has been gaining serious steam in this area, selling over 500,000 vaporizer units and growing its business by more than 200 percent in the past two years. And while “prohibitions that many venture capital firms have on investing in ‘sin’ products like tobacco, illegal drugs, alcohol and gambling” have kept many investors from joining the vape trend until recently, SFGate points out that the stigma seems to be waning. In June, the company secured $46.7 million in venture capital funding – suggesting, perhaps, that the characteristically tech-heavy Silicon Valley market might be turning over a new leaf.

“Historically, it’s strange to hear that in the [Silicon] Valley, right?” Pax Technologies CEO James Monsees joked. “We sell products that people actually pay for. It’s crazy, right?”

Ensuring Good Cannabis Policy

During last month’s Cannabis World Conference in New York, Ethan Nadelmann, executive director of leading drug reform advocacy group Drug Policy Alliance, delivered an impassioned keynote address in which he challenged nouveau-cannabis capitalists to acknowledge decades of hard-won policy by being careful with their choices going forward.

He pointed out that “what happened in [Los Angeles]” – i.e. the sudden, under-managed and (to many non-cannabis-using Americans) distasteful proliferation of easy-access dispensaries, complete with sign-wavers on many street corners – “slowed down progress elsewhere.” When it comes to defining soon-to-be mainstream cannabis culture, he added, potrepeneurs should be asking themselves, “Can we do this right?" 

He stressed his view that many potrepeneurs to date have behaved like “free-riders” who “didn’t do anything to create these opportunities” afforded by diligent policy-makers, and seem to “assume [these opportunities] will keep falling in their laps.” To better shape policy that affects their own industry, Nadelmann said, cannabis capitalists should be “building philanthropy and political support into [their] business models.”

Nadelmann also encouraged industry folk to show their support of the best possible cannabis policy in other ways. “I hope none of you here support laws that prevent people from growing their own marijuana,” he said. “Homegrown [marijuana] poses about the same threat to industry as home-brewed beer does [to the liquor industry].”

He further reminded investors on hand that their industry stands to displace other, more long-standing members who were involved before marijuana became a legal crop, and many of whom are in communities of color. “Will [established] weed delivery guys get some of this new income, or just be displaced?” he asked. And, with the directions in which drug policies are heading now, “will criminal records prevent former illegal sellers from ‘going legal’ and getting involved?”

Dan Riffle, director of federal policies for the Marijuana Policy Project and go-to cannabis lobbyist on Capitol Hill, echoed several of these points with his “Legalization is Inevitable: Profits Are Not” seminar, and explained by phone that he’s “in this to make sure people aren’t arrested and prosecuted for something that’s less harmful than alcohol.”

“[Another] concern is that, when state legislatures start passing legality laws, [legal marijuana] will be pushed out by the black market, so [we focus on making] sure the black market is put out of business. That’s the one model we know doesn’t work.”

Riffle emphasized that he and his colleagues will continue working to educate lawmakers about the relative safety of marijuana, and to create policies that will lay the groundwork for a better cannabis industry to come:

“The industry’s young, it’s immature, and has some growing up to do, but it’s getting better every day; when it was quasi-legal, the only people willing to get into it had a very high risk tolerance, [and] we’re starting to see a shift from ‘marijuana people’ getting into business to business people getting into marijuana. We’re seeing fewer people use scantily clad women in ads for the products, and more focus on quality, not marketing to kids, and safety.”

To continue positive progress for the industry from both a commercial and a policy perspective, “you want to be gradual and slow about things,” Riffle said, “and allow room for states to be laboratories of democracy. Nobody really knows how legalization will and should shake out.”

He added that support from the newly empowered cannabis industry will be pivotal to his lobby’s efforts, too. “Part of the maturity process [for an industry] is understanding how policy affects their business. They should look at it as a selfish investment, if need be, and support the people who’ve made the industry possible.”

Janet Burns is a writer in Brooklyn, NY. Her website is warmlyjanetburns.com.

Sign Up!
Get AlterNet's Daily Newsletter in Your Inbox
+ sign up for additional lists
[x]
Select additional lists by selecting the checkboxes below before clicking Subscribe:
Activism
Drugs
Economy
Education
Environment
Food
Media
World