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In tech startup terms, marijuana could be ‘billion-dollar business’

admin ( | Published on Mar 25, 2015 at 21:26
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NEW YORK (MarketWatch) — Investors are beginning to notice what’s become a competitive and profitable marijuana industry in Colorado, but industry experts warn that the time to go all in isn’t now.

In 2014, there were 29 investments in cannabis startups that amounted to almost $90 million, startup database CrunchBase found. An article on TechCrunch from a CrunchBase editor said, however, the majority of that money is going to businesses in Canada.

Chief strategist at ConvergEx Nick Colas and research associate Jessica Rabe conduct surveys with marijuana dispensaries in Colorado each quarter to understand the direction of the industry, which Colas said is starting to garner attention.

“We get a lot of interest on these reports, but mainly from an educational standpoint rather than actual action in investing,” Colas said. Ultimately, Colas says the industry won’t truly take off until the federal government makes marijuana legal.

The varying laws across states and the relative youth of the industry are big reasons investors — angel or otherwise — shouldn’t be quick to dive in, according to Colas. Under the federal Controlled Substances Act, marijuana is ranked a schedule 1 drug along with heroin and LSD in the most dangerous category. Because of that law, banks have been prompted to pass on getting involved — currently, they won’t open accounts for retailers or offer trading in major marijuana-related stocks on their platforms.

“The question isn’t about the possession, it’s what do you do with the profits?” Colas said. “As long as banks aren’t willing to get involved, people are going to have a tough time making a sizable investment.”

Justin Staley, who owns and operates nine marijuana dispensary locations in Colorado, said he has started to see an increase in interest from outside investors and others looking to open shops of their own.

Staley has been in the industry since 2009, running medical dispensaries, and said he was one of the first to open a recreational shop, so he’s seen it all. In his mind, he said, the competition is all good.

“Sure, it’s driving prices down in some places,” Staley said, “but it’s also helping to set a standard.”

The industry is maturing. In Colorado, competition has intensified in the year since shops began to open. ConvergEx’s latest report revealed that while shops say they’re still seeing 100 to 300 customers on average per day, prices across the board have been cut as more dispensaries open and people find other legal ways to buy marijuana.

“The industry is very profitable,” Colas said. “If you were to value it as a tech startup, it would be a billion-dollar business.”