As recreational and medicinal marijuana continues to boom as a major emerging industry in the US economy, there are still lots of opportunities to invest in marijuana businesses. While ROI has been incredibly high and consistent for many investments in the industry over the past 25 years, extreme growth has left much of the industry starved for capital. With the demand for investments so high, investors that are properly educated in the nuance and common pitfalls of the industry have the potential to realize massive gains on their investments.
It’s pretty common knowledge that the beginning of a successful industry is a great time to invest, but how to invest in a marijuana business properly, can be a little daunting for many investors. In this article, we’ll walk you through how to invest in marijuana business successfully in just 5 steps. Here at BeGreenLegal, we are well experienced in guiding investors to solid and sustainable ROI in the marijuana industry. Hopefully, our insights can help you take those first steps towards breaking into the marijuana industry.
The incredible opportunity of investments in the marijuana industry
The marijuana industry started in 1996 when California first legalized medical marijuana, but the industry has come a long way from those early days. The nationwide economic impact of the marijuana industry increased over 30% to a projected $92 billion dollars between 2020 and 2021 alone. While additional states changing regulations and allowing the industry to spread can be viewed as responsible for part of that increase, California, the most mature market in the marijuana industry, alone had an estimated impact of nearly $20 billion.
Each step of the process carries a surprisingly reliable value increase, as most investors are willing to pay premiums for businesses closer to operation. There will, however, be some variations between each type of business within the cannabis industry. While the path to operation often begins similarly for production, processing, retail, and distribution companies, each of these is a unique type of business that will have its own challenges and milestones throughout the process as well as those listed below.
How to invest in marijuana business successfully
If you’re not already invested in marijuana businesses, the best time to get a piece of that growth is now. The steps below are a general outline for how to get invested in a marijuana business, and how to make investments that are right for your specific goals and resources.
Step 1: Understand the major marijuana business types
The marijuana industry encompasses a wide variety of operations that have very different roles within the overall market. This variety of different approaches to capitalize on the massive growth of the marijuana industry is one of the reasons that its economic impact has been large, but also one of the largest barriers to new investors understanding how the industry functions. Each type of business in the marijuana industry gives experts from multiple different fields unique opportunities to leverage their experience, resources, and knowledge. Understanding each of these types of business within the marijuana industry is an essential first step to responsible investments.
The Major Marijuana Business Types
The agricultural operations where marijuana is bred and cultivated. Like most agricultural endeavors, these can offer investors a large amount of added value over time but can often be very complex and require high levels of expertise to avoid risks.
Manufacturing, processing, and extracting are highly specialized processes that require large overhead investments in equipment, facilities, and expertise. The demand for these facilities is often very high, and they leverage technical processes to yield high profits for investments with enough capital and expertise to ensure success.
Due to the highly regulated nature of marijuana, a highly lucrative logistics sector has developed around transportation and distribution. Distribution operations can potentially fill valuable niches in the larger industry, and can actually become more profitable investments in areas where supply is saturated.
As the front lines of the marijuana industry, retail businesses are often poised to be some of the most profitable operations. There is an extra risk that goes into the regulation, licensing, and publicity for a front-facing business in the marijuana industry, however.
Step 2: Assess your resources and goals
Not only do you need to understand the marijuana industry before you invest, but also understand your goals and resources as an investor. Your goals could help point you towards which of the many ways to invest in the marijuana industry are right for you.
How much capital you want to invest may be the first question you need to ask yourself. Taking a manufacturing operation from the ground up to full operation, for instance, will require much more significant capital than purchasing a retail dispensary in the licensing phase and investing in the last steps to get it up and running.
It’s also incredibly important to analyze your desired ROI. If you’re looking for a relatively short-term profit, for instance, you may want to look at focusing on investing at a specific critical point in a marijuana business, such as when they are seeking licensing and a Certificate of Occupancy. While investing more long-term in the success of a marijuana business could compound those early gains, what’s right for you will depend on what you want from your investment.
What are your other goals for your investment? Are you going to be devoting your own time to this endeavor, or do you want to find an investment that allows you to be hands-off? Are you solely interested in monetary ROI, or does free or reduced access to cannabis carry value for you? These questions are best answered before you even start investing.
Questions to answer before investing in a marijuana business
Step 3: Determine how you want to make money
Due to the extreme demand for marijuana businesses caused in large part by limited licensing and skyrocketing retail demand, there are quite a few ways to make money investing in the marijuana industry. Many investors will specialize in specific aspects of the process. Experienced land developers, for instance, may decide that their best angle for maximum ROI is to buy premium Green-zoned locations and build so that they can sell a ready-to-operate facility.
Others may decide that they want to invest in a business from beginning to end. Taking a business from its early days all the way into daily operation can not only potentially compound your profits from those early milestones but also build equity as your business establishes itself. This will be a very different investment than focusing on a specific process in establishing a marijuana business or building a business to sell. This is why it’s incredibly important to determine whether you are investing to build value and sell, or to build value for the long term.
Step 4: Build it or buy it
There are two distinctly separate avenues to invest in a marijuana business. Building an operation from scratch can be a long process. This can be incredibly rewarding, but with licensing, permitting, acquisition of acceptable property, local approval, and all the other infrastructure development that goes with building a business numerous challenges will often present themselves along the way. Starting something from nothing will always yield excellent gains on investment over time though if you can persevere through hardship and succeed.
Alternatively, many people will buy an already somewhat established marijuana business. Sometimes these are distressed operations with investors looking to exit, but often, investors that have already developed a business past certain milestones are happy to take returns on their investment. While you may pay a premium for a business that has already taken some initial steps, early steps like permitting and licensing being out of the way helps mitigate many of the risks and pitfalls in investing in new marijuana businesses. Due to each milestone in the process of getting a marijuana business operational is a potentially large increase in investment value, there are always operational or close to operational businesses for sale from investors who specialize in early development.
Step 5: Determine your exit strategy
Determining when the best time for you to sell isn’t necessarily about exit strategy always, but about maximizing your ROI. The marijuana industry shows no sign of slowing its growth, so many people choose an advantageous time to exit investments so that they can reinvest in new business. This allows them to specialize in certain steps in the design process to get the most out of their investments.
The proper exit point is different for each investor depending on your goals and resources. An investor who specializes in the operation of successful businesses to build value over time will have an entirely different way to maximize ROI than an investor who specializes in increasing value by developing land to comply with regulatory requirements.
Some investors believe in sticking with one investment for the long haul, in which case you’ll need experts for different forms the business takes as it grows. If you want to hold onto an investment in a cannabis business for long-term growth, you need to find a reliable operating partner. Running a business of any kind is hard work that requires expertise to oversee and effectively delegate tasks. Your ability to find someone to work with you and make the business successful day-to-day is the most important step to having healthy ROI for years.
Let’s help you craft an investment strategy
The growth in the marijuana industry is an opportunity that’s too lucrative for investors to overlook today. There are a lot of moving parts in the industry, and not all investments are equal. A knowledgeable investor always has the edge, and smart investors surround themselves with the right expertise.
BeGreenLegal is a full-service agency that helps marijuana businesses get operational and profitable. We help individual investors find the right uses for their capital to get the best possible ROI in the marijuana industry. Contact us for a free investment analysis and see how best to invest in a marijuana business.