Private Equity Money Starting to Pour Into Surging Marijuana Industry

The cannabis industry, which had more than $5 billion in sales in 2015 and is expected to grow over the coming years. This is starting to earn the attention – and millions of dollars – from private equity investors.

A number of investors have moved quickly into either backing companies that operate in the legal marijuana business or providing financing for promising startups.

Funds that are looking to invest in the legal marijuana industry include Tuatara Capital, Seventh Point, Poseidon Asset Management and Privateer Holdings, according to Business Insider.

Seventh Point, based in Connecticut, plans on purchasing cannabis-related assets in California, according to a press release from the company. The goal is to invest $75 million over the next three years.

The firm has already received two separate letters of intent to invest $5 million with the fund.

“We have seen a tremendous shift in the willingness of investors to come off the sidelines and take advantage of the tremendous opportunity available in legal cannabis,” Steve Gormley, president of Seventh Point, said in the release.

Massive Marijuana Industry & Private Equity Growth

It is now legal to sell marijuana for medical purposes in about half the states in the union. Four states – Colorado, Washington, Oregon and Alaska – and the District of Columbia have approved the sale of cannabis for recreational use.

Estimates vary, but Marijuana Business Daily projects legal marijuana sales will hit $4.3 billion nationwide in 2016 and $11 billion by 2020.

But those numbers could fluctuate upward if more states vote to legalize the sale of marijuana for medical and recreational use. There are various marijuana measures on ballots in 13 states this fall. They include Florida, California, Massachusetts and Ohio. More are expected in the coming years.

Seeing the opportunity, investors are making their move into the industry. According to Business Insider, 47 percent of cannabis industry investors expect to invest $10 million or more into the legal marijuana industry.

Complications in the Cannabis Industry

Those looking into investing have to be even more meticulous in their research than they would normally. Because marijuana is still listed as an illegal drug by the federal government, extra care has to be taken on researching the laws in the state where the investment is being made.

As noted, some states have approved marijuana sales for medical use only, not recreational. Others are considering doing so but it’s important to keep an eye on the ballot issues and know the potential issues with investing in a marijuana company, particularly one that works directly with the plant.

Another issue is that most banks will not loan to cannabis companies out of fear of action against them by the federal government, although there are currently lenders trying to find a way around this issue.

The movement into the industry has been slow but steady. About 18 percent of startups in the cannabis industry have received funding from venture capital and private equity companies. Those investors include Roger McNamee, an early Facebook investor, who has put part of his personal fortune into MJ Freeway, a cannabis software company based in Colorado, according to Business Insider.

“I’m seeing the profile of the cannabis-industry investor thawing,” Gormley told Business Insider. “Whereas it was only cowboys, I’m seeing people who are traditionally bottom-line driven and conservative coming off the sidelines.”

As the move to legalize marijuana gains steam in other parts of the country, expect investor interest to continue to grow.