2016 Marijuana Investment Outlook

Investing in fast-growing industries is like sailing with the wind at your back.

When a sector is young and vibrant, opportunities for ambitious entrepreneurs are practically limitless.

And as regular readers know, marijuana is among the fastest-growing sectors in North America.

To review, the legal cannabis sector grew from $1.5 billion in 2013 to $2.7 billion in 2014, an increase of 74%. It’s expected to grow another 68% through 2015. That’s according to ArcView, a widely respected marijuana research firm.

The Washington Post reports that legal marijuana sales could top $35 billion by 2020.

My point is simple. Billion-dollar industries growing this fast don’t come along very often. It’s even rarer to find one with a clear path to continued growth for the foreseeable future.

But that’s exactly what we’re seeing with cannabis today.

In Oregon, for example, there are already more pot shops than Starbucks or McDonald’s.

Meanwhile, Colorado’s government will collect around $125 million in marijuana taxes this year (more than it’ll collect on alcohol).

Another six states will vote to legalize recreational marijuana use next year, says Fortune.

And in total, 23 U.S. states plus Washington, D.C., have now legalized medical marijuana.

Canada also appears to be headed toward nationwide legalization in the near future.

Importantly, places that have legalized cannabis are doing just fine. Marijuana use among teens in Colorado actually appears to be declining (perhaps now that it’s legal, it’s not “cool”?).

The nightmare scenario of chaos and crime that some predicted simply hasn’t come true.

This trend is only going to accelerate as more states pile on the legalization bandwagon.

Here’s how I summarize the choice faced by many U.S. states today:

  1. Continue arresting people for consuming a plant with clear medicinal uses
  2. Tax it and watch the money pour in.

Doesn’t seem like a very hard decision to make. I believe the cat’s out of the bag on this one. We’re headed to a future when marijuana use will be viewed as comparable to, or even less harmful than, alcohol. If you’ve been to Colorado, California, Oregon or Washington state lately, you know exactly what I mean.

Marijuana + Angel Investors

Despite the obvious appeal of the marijuana industry, startup investment has been lukewarm.

The primary reason is that, according to the feds, marijuana is still illegal. That means a majority of venture capital funds simply cannot invest. Doing so would violate their charters, which in most cases forbids investment in any activity deemed illegal by the federal government.

This is fantastic news for angel investors and smaller funds. Here we have an incredibly fast-growing industry, and the majority of traditional venture investors have been forced to exclude themselves from investment.

If you want to get involved, now is the time. In every state there are groups pushing legal reform forward. That’s a good place to start. There are also industry and investment meetups all over the world.

Here are four areas within the cannabis sector I’m keeping a close eye on in 2016:

  • Delivery: Already a hot area of investment in 2015, delivery will accelerate through 2016 and beyond.
  • Medicine: Marijuana has real medical value and benefits, of that I’m convinced. Finding quality investments will be tricky, but the potential is massive.
  • Accessories: No truly dominant player exists, and customer demands are rapidly evolving. Big opportunities abound.
  • Testing: Regulations often require marijuana to be tested for toxins and THC content. Options today are expensive and slow.

You’ll notice I didn’t include the most obvious option: growing the pot. I avoided this one intentionally, for a number of reasons.

First off, it’s going to be really crowded. Second, it’s going to be extremely highly regulated (for a while at least). Third, prices will likely continue to fall across the world for at least the next few years. Nobody knows how low prices can go, but I suspect it’s a lot lower than where they are today.

We’d love to know what readers think about investing in this dynamic and somewhat controversial space. Drop us a note in the comments and let us know.

Good investing,

Adam Sharp
Founder, Early Investing

  • Rob Reinders

    I would like to invest in this space. The growth should be phenomenal.

  • Asclepios

    A major hurdle is the language of legislation. Whether pot is lucrative or a burden on governments depends on how legalization is structured. It certainly has harmful effects that I’ve witnessed first hand as a nurse anesthetist, but at the same time the US is stronger when we avoid the bureaucracy of countries like Greece, where 25% of GDP comes from the black market. –Niko

  • d poi

    I doubt benefits of smoking rope, (dope); though i’m sure those who think its “cool” like it. I believe there is a huge potential for canvases’, (cannabis) industrial potential. After watching my paper bills go thru the laundry and survive; and the timing for sattiva illeagality; I believe it had a lot to do with secret ingredients in paper currency. There are certainly enormous benefits to eating hemp seeds.

  • john cisneros

    If investment is waning why is Mr.Warren Buffet investing there in Colorado with subdued large scale warehouses full of growing plants? Seems like a pretty big investment to me.

    • Austin

      Likely using cash investments and hardly comparable to the average investor. Buffets losses are pennies to most people’s dollars. Little to no risks due to his ratio of capital investments that are likely successful.

  • barbaralongue

    I am actively looking for opportunities all across the us in this sector. Thanks for sharing the stats and some ideas…

  • Chad

    Where can I invest and how much is the stock

  • Austin

    Commercial real estate. The Pacific Northwest requires indoor cultivation of cannabis. I have been developing relationships in this sector. If anyone is interested in investing, feel free to reach out. austin@ccpdx.org

  • james young

    I’m of the opinion that cultivation will be heavily regulated and therefore not something I would invest in until the regulatory climate dust has settled. However, delivery is the key to home bound people, similar to how pharmaceuticals are delivered. That’s where I would start or invest in this business.

  • Tom Farah

    My name is Tom and I strongly believe that the Federal gov. is lining up and starting to exercise a few presidential initiatives to release federal prisoners convicted on violations of large amounts of marijuana and are serving stiff sentences, as long as they have served a mandatory-minimum(lest amount of time for that crime) in reference to sentencing guidelines. and also with absence of violent specifications.I know of this first hand. My brother just received a letter signed by President Obauma saying his sentence has been commuted,after servering ONLY 19 years for selling POT.Ron was told by a very prominent attorney that the Feds.are going to legalize or reform the marijuana laws and get in on the truck loads of cash that they have been losing out on because of stupidity.He also said in ten years marijuana will be legal in every state. And there is a great need to regulate it and make sure it’s safe to consume, and that will come with reform.

  • Carole Thomasian

    I am extremely interested in all facets of this industry. All opportunities and demands will be on the rise. I would like to get in on these startups please let me know. Ready, willing and able.

  • David Renzetti

    In Canada the industry is exploding. The process has begun for full legailization. Don’t know if you have access to Canopy Growth stock where you live (ticker symbol WEED.TO) on the Toronto stock exchange. The company has the largest legal grow op in the world. They have very extensive contacts in the medical pot industry. And for street cred they just did a deal with Snoop Dog. 2years ago it took them 3 months to sell1$ million. last year they had there first million dollar month. 2 weeks ago they had there first million dollar sales DAY. There single largest problem is keeping up with demand. They have plans to quadruple prod. But as always do your own independant research