(Cody Wilson/Daily Bruin)
Thirty years ago, buying cannabis was difficult, expensive and illegal. Buying cannabis in 2019 is somewhere between picking up a prescription from a pharmacy and buying beer from a liquor store. Join columnist John Tudhope each week as he visits cannabis companies in Los Angeles and discusses the budding industry.
Cannabis investment is a high-risk, high-reward game. No pun intended.
The legal cannabis industry is going to be enormous, no matter how you measure it. Not only are there retailers, cultivators and manufacturers, but there are also testing labs, attorneys, technology companies and a laundry list of different businesses vying for success.
New states are opening up legal markets, Canada has federally legalized marijuana and LA, the largest city in the nation with legal cannabis, continues to expand its industry – there are literally billions of potential dollars up for grabs.
Behind most, if not all, of these emerging companies is an investment. The money can come from the business owner, the business owner’s sister, a friend or an outside company that believes the concept, product or business owner is worth giving their money to.
To learn more about the financial influence behind the budding industry, I spoke with two different cannabis investment firms. I was curious about what makes the gamble appealing, and the risks associated with investing millions of dollars into a product that can land someone in jail in certain parts of the country.
Michael Waldman of Goldstock, a cannabis investment firm, said anywhere from seven to eight out of every 10 startups will fail, including cannabis businesses. Hopeful business owners bring what are called “pitch-decks” to these investors and present their companies and products, in return, asking for an investment a la “Shark Tank.” But unlike the rehearsed pitches and theatrical presentations of “Shark Tank,” Waldman said the majority of proposals he sees are not worth his time and money, and he looks to make upward of 10 percent return for the businesses he chooses to work with.
Roger Abramson, a businessman who built a $100 million business, said his venture capital firm, Abramson Accelerator, has an opportunistic stake in the infant market. He believes it is the fastest growing industry in America and is an avid advocate for the medical benefits of the plant.
“I’m an entrepreneur at the core – I’ve been in three industries, and I see the gold rush,” he said. “I believe it is going to be much bigger than people think. I think in 25 years this is a $500 billion industry.”
Abramson said the only way to ensure his money is safe is by doing his due diligence with thorough preliminary research on the company of interest. He has slept on couches and insisted on meeting people’s families to get a comprehensive understanding of the companies he might invest in and their business plans. Abramson said he prefers stock options – owning a piece of the company – rather than cash investment returns.
Abramson predicts that strict banking regulations which prohibit cannabis businesses from using common banking services will ease in six months and that cannabis will be federally legal in 24 months. I’m looking forward to seeing if Abramson’s predictions are correct, then maybe I might ask him to invest for me.
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Published: February 04, 2019
Founder & Interim Editor of L.A. Cannabis News