April 7, 2013

What Is The Best Way To Invest In The Marijuana Industry?

April 7, 2013
invest investing marijuana cannabis industry expert

invest investing marijuana cannabis industry stocksChances are if you are reading this article, it’s because you are trying to crack into the marijuana industry. It’s not as easy as most people think. The marijuana industry is constantly growing, constantly evolving, and rarely follows traditional business models and patterns. There’s nothing like it out there. I know a lot of people will point to the end of alcohol prohibition as a model, but things were so different so many decades ago, that I think it’s hard to compare the two, at least when it gets to the details. There’s only a handful of people in the industry currently that I feel have the skill set to navigate the marijuana industry and to see through all of the fakes, scammers, and bad ideas.

Most of the people that are currently in the marijuana industry either don’t have a background in traditional business, or don’t have a long background in marijuana. Rarely do I meet people that possess both qualities. I get a lot of inquires from people that are from traditional business backgrounds asking for advise about how to invest into the industry responsibly. They read or hear about stories of people getting burned, and it makes them hesitant to invest. I think that is sad, because in order for the movement to reach it’s full potential, it’s going to no doubt need infusions of capital from non-insiders. When someone in the industry takes money, knowing that they can’t deliver on their promises, it hurts the industry as a whole.

I get a lot of other inquiries from people asking about an investment they recently made, to see what I think of it. It puts me in the unfortunate position of being the bearer of bad news all to often. If I had a dollar for every time I thought to myself while reading an e-mail, “You invested in what?!”…That’s what happens though when someone is so antsy to invest in the booming marijuana industry, yet doesn’t have a background in marijuana. And when I say ‘background in marijuana,’ I don’t mean that you used to smoke it, and/or grew a plant in your garden ‘back in the day.’ I am talking about real experience, making real money, and paying for your living with the profits you have made.

If you are going to invest in the marijuana industry, do as much homework as you can, and find people that have a proven track record that you can trust. Don’t take any one person’s word for it – find out as much information as you can. The legal marijuana industry came out of a black market, and as a result there are a lot of shady characters. People with tremendous baggage probably have that baggage for a reason, so beware. That’s not to say that anyone is completely void of criticism, but if the allegations against them are unfounded, they should be able to easily explain so. I know so many people in the industry that get heaped large amounts of praise and all the well documented allegations against them are dismissed as being ‘hit jobs by haters.’ Take it from me, if someone has as many haters as they do supporters, they should be avoided when it comes to business.

Ok, I’ll stop my ranting. Now that you know my advise when it comes to people, let’s take a look at marijuana business models/plans/products/services/etc that people are investing in these days. Below are things that I see regularly, please add ones I missed in the comments section below:

Consumption Products – There are a lot of different ways to consume marijuana already, and more coming along everyday. It seems like every time I turn around someone has a new vapor pen. I would encourage people to steer away from vapor pens right now because the market is so saturated, unless there is a true revolution with the product. Vapor is vapor, and yes some are more efficient at creating the vapor than others, but it would take a huge marketing campaign to stand out right now. Investing in things that involve dabs is really hot right now. I once saw a torch-less dab device that I was really impressed with. If someone invested in that, and put a strong marketing campaign behind it, I think it would leave everything else in it’s dust.

Grow Equipment – There is a ton of stuff for growing out there right now. I have seen vertical hydroponic systems, LED lights, and lots of other products for growing come along recently. More and more people are either growing their own, or are growing for other people more and more everyday. This trend seems to not be going anywhere, and cashing in on it is a solid way to invest. However, be leery of what actually works and what doesn’t. If you haven’t grown before yourself, I would steer clear. I once participated in a conversation with a LED light salesman and an investor, and I could tell the investor was in over his head and accepted everything the salesman took as gold. If you are investing in grow equipment, especially lighting, demand references from commercial growers that have used the product to make sure it actually works and is being used. For example, I don’t know anyone out there that has seen improved results from LED lights…except the people selling them…

Growing Nutrients – It seems to me that there are far more nutrients being pushed in the industry than there is equipment. I think that’s because there are only so many ways to improve grow lights and buckets, but just as with humans, new foods and nutrition is being discovered everyday. But just as with human food, plant food can be the determining factor between success and crappy results. Always ask to see those results, and make sure there are a lot of them. I once heard about some guys that were looking for investors for their topical foliar spray. They claimed that  if someone used their marijuana plant spray, it would increase yields by 40%. This is a form of plant nutrition that non-marijuana gardeners use all the time, and I’m sure it works. However, marijuana is a very unique plant, and also people aren’t smoking their traditional plants like they do marijuana (I don’t want to smoke foliar spray!). People don’t spend as much time, care, and resources getting their roses to produce within the top 1% of it’s capability like they do marijuana. If you spray a rose with new nutrition, you might get 40% more roses because they plant desperately absorbs the spray. Marijuana is usually getting it’s nutrition from it’s roots with all kinds of stuff already, so the spray likely won’t have a huge impact, if at all. The only thing that I would want to know if I was investing in a nutrient product is quality and output data from a garden using proven nutrients, and a garden using the proposed nutrients. I would want to see information from multiple harvests. If there was a clear trend of improvement, I would consider investing. And even then, only after I was able to let one of my reliable grower friends use it for awhile and they endorsed it.

Consulting – I see lots and lots of consultant based businesses popping up, which is something I encourage investors to look into. As I stated before, the marijuana industry is hard to navigate, and experts are going to be in high demand going forward. Just make sure that they are really an expert with a proven track record. Feel free to shoot me an e-mail to see what I think because like I said, I only consider a handful of people to be true experts with a skill set that it takes to accurately navigate the marijuana industry, for what that’s worth.

Sales – The obvious entry point into the industry is direct sales. I would imagine there are more people looking to open a dispensary, collective, WA/CO store, etc these days than probably any other area of the industry. Someday selling marijuana like they do other products will be a reality in America, and the people that get in on it first will reap large rewards. Just be aware that reform and industry go hand in hand when it comes to this area of the marijuana industry, so be prepared to fight. Also, research as much as you can about asset forfeiture, because at anytime everything can get taken. The more successful you become, the larger the target on your back.

Software – As with any industry, the marijuana industry is going to utilize computer software to organize information, improve process efficiencies, etc. Dispensary locating apps have made a lot of money in the industry, and inventing something that helps customers and/or the industry is a great way to make money in a 100% legal fashion. Something that I think people need to think about though is the looming threat of larger companies making your technology obsolete. I see more and more dispensaries using YELP, which is no doubt eating into the previously mention dispensary locating technologies.

Processing – Some of my friends are starting a concentrates processing company. There is more product and trim around than ever before, so turning it into concentrated gold seems like a solid business venture. Starting a medible company is another good idea that I have heard of. If you can find a way to sell it at retail outlets, might as well make it. Just make sure to do it in that order. I know a lot of people sitting on a lot of product with no where for it to go, which seems like a colossal waste of time and money.

Tourism – 420 tourism is a great, legal way to take advantage of industry changes in Washington and Colorado, and in medical marijuana states. Colorado and Washington have much larger market bases obviously since recreational is legal, but medical marijuana tourism is a good idea too. I have heard of 420 cruise lines, hotels, bed and breakfasts, and other things that all sound cool to me, and I’m part of the target demographic for sure.

Stocks – I will be the first to admit that I don’t own any stocks. I don’t know the real benefits or drawbacks of current marijuana stocks that are out there. I know there seem to be more and more of them out there every day. I have had the benefit of seeing a lot of behind the scenes things that go on behind a lot of these companies, and I can definitely say things don’t seem to be worth investing in right now in my opinion. Although I don’t know about stocks, I do know that if a company can’t point to something that is super successful that they are doing right now, and everything is ‘down the road,’ something is wrong there. I would be willing to buy stock in a proven company with proven ideas, but to invest in something that might/maybe work out if/when their products and services take off. If a company tells me more about the future of the industry and how big it will be, rather than how their company is currently dominating that same booming industry, something is fishy.

Entertainment – I’ve said it before and will say it again, the first person to open up a marijuana arcade will be rich. I’ve wanted to do it myself but just don’t have nearly enough capital. Barcades are very popular, for a reason. People like to play video games while enjoying their substance of choice, that is no secret. Marijuana would be even more popular in my opinion. I once owned 38 arcade games and had plenty of marijuana to go around at my house. I know first hand just how much marijuana consumers love playing arcade games, whether they realize it or not. There are few things I enjoy than smoking a joint while playing pinball, and I know I’m not alone.

Media – All of the previously mentioned products, services, ideas, etc are ultimately going to need to get in front of consumers in order to let consumers know that they exist, right? People that successfully create marijuana media, in any form, are going to make money from advertising. Traditional advertising routes are usually closed to marijuana businesses, and even if they weren’t, they are not as targeted as a form of media that is targeted to a 100% cannabis crowd.

Producer – There are a lot of people investing in industrial gardens these days. If you succeed, you will be rewarded handsomely. But realize that marijuana is not easy to grow, especially on a very, very large scale. There are more and more hoops and regulations created daily, and the selection process is becoming more narrow.

Areas that are in their infancy, but will grow more and more in the future and are worth keeping an eye on are banking, insurance, accounting, advertising, and wholesaling. If there is something that I missed (no doubt I did!) please post it in the comments below. If you want to recommend something, have an idea, or anything to add, please do it in the comments!



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