Cannabis Industry Attracts More Mainstream Investors as Business Grows

Ted Chung Snoop Dog Marijuana Legilization
Courtesy of Ted Chung Snoop Dogg

With the legal cannabis industry generating $6.9 billion in sales in 2016, up 34% from 2015, it’s a no-brainer to say that much is at stake as the business inevitably grows. Much like the independent movie biz, the cannabis industry attracts investors looking for high-risk, high-reward investments, and as marijuana goes more mainstream, so does the funding mechanisms for the industry’s businesses. Just recently, numerous investment firms have cropped up, announcing themselves as major entities in the billion-dollar industry.

The opportunities are wide-ranging: Everything from exotic strains of marijuana to concentrated edibles to topical creams fortified with CBD extracts, as well as clothing and jewelry lines are all being offered to consumers.

CW Hemp, a family-owned company based in Colorado, is known nationwide as the exclusive provider of Charlotte’s Web, which the company has dubbed as “the world’s most trusted hemp extract.” Founded by the Stanley brothers of Colorado, the company’s mission is to provide the best medicinal product to those who are in serious need.

When it came to getting their businesses set up, the Stanley brothers were on an interesting road in terms of investor interaction. “We’ve built one of the strongest marijuana brands in the world, and we’ve done it with less than $4 million in total outside capital, with a majority of that money coming from Florida-based investors who wanted to feel good about what they were doing with their money,” says Joel Stanley, CEO of CW Hemp. “They believed in our mission. We’re constantly asking ourselves if we want to bring in an outside investor, because who doesn’t like to feel more secure? But we’re very proud of how we built a family business with small investments.”

Bonita “Bo” Money, one of the few women of color in the cannabis products industry (“less than 3%” she estimates), has been an enthusiast for years, calling it “a miracle plant,” relying on the medicinal value of the substance as the key ingredient for her popular topical cream That Glass Jar. “People need to be properly educated. There’s too much misinformation and part of my job is to ensure that people understand the benefits,” she says.

Money is also the founder of the networking organization Women Abuv Ground, aimed at what she calls “cannapreneurs.”

“I don’t get high,” she says. “I’m interested in the healing properties of CBDs and how people can heal naturally. My company makes no medical claims and we can only gauge its effectiveness by the people that have used it for various ailments. But from what I’ve seen, this product is of huge benefit for multiple health issues.”

And when looking for investors to work with, she turned to some private sources, while mostly self-funding her endeavor. “I’ve had the chance to work with some very like-minded people who believe in this cause. I’ve been courted by major companies, but I didn’t want to give up control. I’ve been discussing a potential collaboration with my mentor, Dr. Charles Hensley, the creator of Zicam, and I’m developing an animated series called ‘The Pot Headz’ and a reality project centered on the cannabis lifestyle. I’m very excited about what’s coming up.”

Taking a different approach to investors is MedMen, a leading cannabis firm with nationwide exposure, based in Los Angeles. MedMen management offers turnkey services to cannabis license holders, while MedMen Capital operates as a strategic investment group working in key markets across the United States and Canada.

“Nearly two decades after California became the first state to legalize medical marijuana, we now have 28 states with legalized medical marijuana,” says Adam Bierman, MedMen’s co-founder and CEO. “Last November, the number of states with legalized recreational use doubled to eight. As marijuana becomes more accepted by the mainstream, its appeal also broadens. It’s not just about stoners rolling up joints. It is about highly productive and functional professionals choosing a cannabis vape pen over a glass of Scotch, or Chardonnay moms shopping for CBD-infused bath bombs and cannabis edibles.”

In terms of investment opportunities and the way MedMen is structured, Bierman is candid about the emerging opportunities. “Everything at MedMen has been earned,” he says. “When we started out, there weren’t any large-scale cannabis investment firms in operation. MedMen is primarily self-funded, and we did receive some early capital from a wealthy family in Florida who believed in our mission and wanted to be a part of the industry.”

MedMen has grown quickly, now employing more than 100 people across all its departments. Bierman says the company has seen “over $130 million in project development in the cannabis space over the last 12 months.” And despite a rapidly changing landscape with more players arriving by the month, Bierman is confident with how MedMen has progressed.

“Had we started last year, I think the way we would have approached our business model, and our launch, might have been very different. We’re still breaking new ground every day in an industry that’s just starting to truly explode, so the fact that we did what we did with no major capital infusion at the beginning, I’m very proud and excited for the future.”

Indeed, the mainstreaming of money into the sector got another boost with the inaugural Institutional Capital & Cannabis Conference, organized by MedMen and IMN, which produces investment and finance conferences. Over a weekend in March in San Jose, Calif., interested investors attended such panels as How Consumers Are Driving the Industry Forward, Navigating the Regulatory, Compliance and Tax Landscape and Private Capital Investment in the Cannabis Industry, with reps from top industry investors Casa Verde Capital, Arcview, law firms and other investment houses. MedMen notes that the conference is “the only event of its kind focused on the legal cannabis business as an alternative asset class to achieve portfolio diversification. This event has been created specifically with the needs of the institutional and accredited investor in mind.”

Patrick McMahon and Scott Lambert, the co-founders of The OG Collective and P&S Ventures Holding Co., have seen the industry expand in ways that they never could have anticipated. The Cathedral City-based company is looking to expand further into Los Angeles, with the ability to grow plants, make concentrates and edibles, and produce vape pens, which continue to increase in popularity.

“We expect the OG Collective to expand,” McMahon says. “We see ourselves as becoming the BevMo of the marijuana industry. The industry is too big to turn back on now, and the amount of potential tax revenue cannot be ignored. Investments are tough because we’re still dealing with a cash business, which is a big obstacle, but we’re getting there.”

Lambert adds: “Between the two of us, we have a tremendous amount of knowledge about this business. We’ve created high-paying jobs in this particular area, and as the public becomes better informed and educated, we see that opinions are changing. Marijuana has been here forever and it’s not going to go away any time soon.”

Considered the largest nonprofit medical cannabis dispensary in California, Harborside Health Center, founded by Steve DeAngelo in 2006, is one of the country’s most well-known medical marijuana dispensaries. Operating out of Oakland and San Jose, Harborside has pulled in more than $30 million in sales per year on medical marijuana since its inception, with 2016 netting $44 million. In addition to running Harborside, DeAngelo is the president and co-founder of the ArcView Group, a cannabis-focused investor network that also operates as a research group that works to connect entrepreneurs with cash-ready investors.

“ArcView was born seven years ago out of my friendship with Troy Dayton,” DeAngelo says. “We had been approached by various cannabis entrepreneurs who needed help with financing, so we created ArcView as a way of bridging that community with the investor community.”

And the results speak for themselves. “Since we started, ArcView has raised $100 million, which has benefited 130 companies,” he says. “We’re really one of the original pioneers in the space, and neither Troy nor I had any experience in finance. We’re activists but we’re conscious of the challenges that people face when wanting to start their own operation. The power of private enterprise is what drives social change, and we’re very excited about how things are progressing. It will be very hard to rollback what’s been accomplished, despite the apparent intentions of some in our government.”

Another big player is Casa Verde Capital, a venture capital and investment firm dedicated to the growth and expansion of the cannabis industry. Founded in 2015 and based in Los Angeles, Casa Verde is overseen by probably the best-known cannabis entrepreneur, Snoop Dogg, as well as by Ted Chung, Evan Eneman and Karan Wadhera. The firm specializes in growth capital, and seed and growth-stage investments, as well as helping to fund startups while investing in media, technology, mobile apps and research development focusing on breakthrough technologies, innovative remedies and lab testing.

Another business model comes from Kalyx Development, which has rapidly amassed a multi-state portfolio of cannabis properties. The company leases its properties to cannabis operators, and offers the opportunity to certain tenants to receive capital which can be used to upgrade infrastructure. Kalyx purchases commercial and industrial real estate which can be used for new cannabis businesses, and is well positioned in the industry due to their deep knowledge of specific regulatory, zoning, and operational challenges which have become unique obstacles to those looking to expand in the cannabis industry.

“We’re the preeminent company in this space, and we’re thrilled about the many opportunities we’re seeing in California,” says Lily Colley, director of marketing and operations. “This is a very exciting market for us, as we see ourselves as a resource for operators in that we can act as an investment vehicle.”

While not acting as a cannabis operator, Kalyx focuses its energies in states with progressive laws and growing cannabis markets such as Oregon, Colorado, Washington and Arizona.

Also working to bring the marijuana business into the mainstream are the start-ups that have relied on the personal investments of their creators to get rolling. Launched in 2005, The Sweet Leaf jewelry collection, created by Los Angeles-based designer Jacquie Aiche, has been at the forefront of cannabis-inspired luxe fashion, with her signature pave leaf charm necklace becoming a big hit with the fashion crowd. Her line now offers studs, body-chains, hoops, anklets, clutches, backpacks, smoking cases, lighters, and denim shirts.

“We have so much fun with our accessories, and that was my goal — to love my job and enjoy spreading the love that marijuana has to offer,” Aiche says. “We’ve just introduced our products in Europe and I’m very excited for what the future holds.”

Celebrity tattoo artist Scott Campbell has turned to the cannabis industry, launching Beboe, which sells high-end vaporizers and edibles.
Campbell co-founded the company with former fashion executive Clement Kwan, with the idea of offering premium products that have a stylish, homemade feel and speak to consumers with a strong sense of what’s chic.

Beboe also benefits from some celebrity investors, including Rose McGowan, Carmen Busquets and Joanne Wilson. The rose-gold disposable vaporizer that Beboe specializes in retails for $60, and is equipped with 150 THC-infused hits, while its low-dose edibles are sold in fancy tins and retail for $25.

Another avenue for investors is cannabidiol, aka CBD, is found in the cannabis plant. It doesn’t get people high, and has recently attracted press due to its claims of healing properties.

Companies — and not all in the marijuana business — are adding it to oils, lotions and creams. Bars across the country are adding it to cocktails. CBD is the most sought-after component of the plant in terms of medical use, and is seen as a savior against many rare and debilitating diseases, especially as CBD elicits no harmful side effects.

It’s a huge business. In 2015, marijuana-derived CBD products clocked in at $112 million, while hemp-derived CBD products took in $90 million in sales; the Hemp Business Journal estimated that the CBD market in total will hit $2.1 billion by 2020.

CBD proponents have many documented cases of it being effective in combating epilepsy, especially in children.

“We produce a product that’s considered a ‘whole plant extract,’ so we can legally market our products in all 50 states,” says Ashley Grace, chief marketing officer for CW Hemp. “Charlotte’s Web Hemp is our flagship business, as it can be sold as a dietary supplement. We work with a non-psychoactive plant that’s rich in CBD, which can be very beneficial for multiple purposes.”

CBD-enriched products have become more widely accepted in the past few years, with celebrity stylists such as Karla Welch on Instagram to talk up the benefits of products from Lord Jones, and makeup artist Jessa Blades extolling the wonders of cannabis-infused beauty products. And as more people learn about the health benefits of CBD, the more commonplace it will become.

“This is a miracle plant, and it should be treasured and not misunderstood,” says That Glass Jar’s Money, whose topical cream has become a big hit with people looking for CBD-assisted therapeutic relief. “Products like our cream are going to be a big part of the future of the medical marijuana business and we’re excited to be at the forefront.”

 

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