An Investor’s Guide to Cannabis and Hemp
Despite numerous challenges that constantly throw this industry on its head, there are many opportunities to make worthwhile investments in cannabis and hemp – and as it becomes increasingly mainstream, these opportunities will grow in abundance and fiscal potential.
Science and pharmaceuticals, engineering of new equipment, marketing, distribution, farming and more, the potential for a rewarding investment (or investments) in the cannabis and hemp sector is infinite. Investors need to remember that market research is the key to making informed financial decisions.
Research by the Kauffman Foundation led by Robert Wiltbank, Ph.D., and Warren Boeker, Ph.D. prove just that. Studies show that investors who spend over twenty hours performing due diligence on a prospective company accomplish 5.9 times more profit on their investments; Investors who spend under twenty-hours average around 1.1 times on investment returns; and investors who spent over forty hours researching achieved a whopping 7.1 times more.
Of course, in a field as wide open as cannabis/hemp, it could easily take twice that long just figuring out where to look. Trust us, we know. That’s why we put together this investor guide – we’re doing the heavy lifting so you can go out and make some real money in this confusing industry.
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First, Some Advice From Experienced Investors
According to Aaron Herzberg, a partner at CalCann Holdings, a medical cannabis real estate company based out of California, “Investments in cannabis are not for the average investor. Cannabis remains federally illegal, and there are significant challenges with federal taxation and lack of access to banking.”
“Regulations are established on a state-by-state level and are constantly in flux.” Herzberg also states that “people think money grows on marijuana plants, but the reality is that the business is complex, capital intensive, and like any other real investment, requires patience and discipline. Those looking to make a quick buck out of marijuana are likely to fail,” Herzberg says.
John Torrens, a Professor of Entrepreneurship Practice at Syracuse, and a board member of the Cannabis Sustainability Committee, also warns about potential risks to investors. “Even though the U.S. Department of Justice has directed law enforcement not to pursue cannabis businesses that operate within local and state regulations, the feds still use size as a proxy for illegal activity and have a tendency to harass large operations, which would make the best investment opportunities.”
“Regulatory ambiguity is keeping a lot of professional money out of the industry,” he continued, “which creates room for smaller investors to establish a foothold,” Torrens says. “Plus, once federal regulators reschedule cannabis as a schedule two instead of a schedule one drug, then the doors will be open for professional and institutional money to pour in,” he says. “This will be the big exit opportunity for the early investors.”
Some Tips to Keep You Safe
Torrens offers some helpful suggestions to anyone researching cannabis and hemp investment opportunities:
- Play by the Rules. It’s important to find a company that not only knows how to grow and extract, but is also fully compliant with their state. “Compliance needs to be a top concern,” he says. Seriously, nothing is worse than putting your money into a company, only for the owner to get arrested, business is shut down, and you’re left high and dry.
- Licenses and permits. Make sure the business you wish to invest in has the correct license and permits according to local regulations. “This is especially true in California where some municipalities have very loose regulations,” Torrens says. “This creates an opening for the feds to come in and shut it down.”
- Distribution. You can choose the best growers out there, but if they don’t have the connections needed to be able to distribute their product, then it’s no better than investing in a Nasdaq company. You can have the best product in the world, but what good is it if no one knows about it?
“The market demand exists, but in an industry, that is just coming out of the shadows, the strength of relationships is critical,” Torrens says. “Go slow. If you think you want to play in this space, then start with a small, manageable investment.”
Popular Investment networks
A great way to get your feet wet in the research pool is to start by researching through cannabis and hemp investment networks. Here are a few places to get start.
- ArcView Group – The granddaddy of cannabis investing, ArcView Group offers investment opportunities for venture capitalists, access to funding for business owners, and market research for anyone interested in learning more about Hemp and CBD financial opportunities.
- CannaFundr – Whether you want to invest in new and growing companies, or you are a business owner looking for funding, CannaFundr is a great place to find like-minded people in your industry.
- New Cannabis Ventures – New cannabis ventures was founded by the owner of 420 Investors, which is one of the largest, due-diligence platforms in the cannabis investment sector. Both sites are great sources of market information.
Although figuring out how to invest in cannabis or hemp can be a challenge, it’s extremely rewarding when done correctly. And by correctly, we basically mean safely and legally, and with a bit (a lot) of due diligence and forethought. Don’t let the call of quick cash let you overlook any red flags that may stand out to you.
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