With cannabis approval rising, investors are mobilizing

With lawmakers still mired in debate, the private sector is doing what it does best.

Sometimes, the laws of the land dictate which business opportunities flourish and which fail to get off the ground. Other times, it’s very much the other way around.

In the case of recreational marijuana, the public outpouring of support for legalization—not to mention the obviously lucrative business opportunities—may go a long way toward forcing Washington’s hand on the matter. The simple truth is that more Americans support legalization than do not, and scientists everywhere are voicing support for the use of marijuana in a wide variety of applications. Needless to say, investors are counting on our lawmakers doing the right thing.

Granted, your opinion of “the right thing” might differ from the next person, but in this case we can (or should) agree: the fledgling marijuana industry could be huge—not just for dispensary owners, but also for realtors looking for development opportunities and states looking to boose their tax revenue.

We could talk all about how ignorance and misinformation alike are shaping the discussion about recreational marijuana, and getting in the way of progress for the entire healthcare industry, but those are discussions for another day.

So what about pot? Is it destined to become the next major cash crop in America? A growing number of startups are betting that it will.

The Startups Are Mobilizing

Medical marijuana is currently legal in 23 states—a trend that has been providing profit and opportunity for growers and dispensaries to the tune of $2 billion per year. Meanwhile, recreational use of the drug has been made legal in just four states to date: Washington, Oregon, Colorado, and, most recently, Alaska.

Despite this rather limited window of opportunity, a number of startups are attempting to position themselves as market leaders as this new industry finds its feet. Indeed, 2014 saw investments in the cannabis industry reach an all-time high at $104 million.

Among the startups looking to cash in is Peter Thiel’s Founders Fund, which has recently pledged its support to cannabis startup Privateer. As proof of Thiel’s business acumen, look no further than his first startup: a little company called PayPal. He knows a winner when he sees it, and he’s counting on the current projections coming true: namely, that the marijuana industry could outgrow the NFL by the year 2020.

Privateer, which is currently raising $75 million in Series B funding, was founded in 2011 by Brendan Kennedy, Christian Groh, and Michael Blue. Privateer is hoping to capitalize on a supply chain that is, as of right now, managed poorly, severely fragmented, and still largely forced to operate in the shadows. They rightfully claim that the demand for recreational pot products has been proven, and hope to be among the first to capitalize on that demand.

Indeed, Privateer has been busy lately. They recently acquired another startup, Leafly—a self-styled “Yelp for weed”—and launched their own Lafitte Ventures, with a focus on medicinal marijuana. Privateer is also looking into building a testing facility in Washington State.

Another startup, Leafly, is also taking a very practical approach to this fledgling industry. Founded in 2010 by former employees of Kelly Blue Book, Leafly has emerged as a leading cannabis information hub. The idea came to co-founder Scott Vickers after he, himself, was given a recommendation from a doctor for medicinal marijuana.

With a clean interface and a notable lack of pot culture iconography, Leafly seems a more civilized repository for pot knowledge, providing information on the strength and various applications of a variety of cannabis strains, as well as an easy-to-use directory to help users find dispensaries nearby. The site currently boasts more than 80,000 users, who have contributed more than 50,000 reviews. Their monthly revenue hit $100,000 recently, though their hopes are to reach $1 million in the coming year.

What Will the Cannabis Industry Look Like?

Globally, this industry's potential for growth is unprecedented. Marijuana has been successfully decriminalized in much of Central and South America, though Russia remains one of the few countries in Asia to have followed suit.

Meanwhile, the list of countries where pot is legal is dramatically shorter. Among them are the Netherlands, Uruguay, and, if you can believe it, North Korea. 

Back in America, Privateer and Leafly are hardly the only two startups looking to corner the market, but they’re certainly a proof of concept: marijuana is gaining traction as both a medicinal implement and a recreational one. In this respect, the corporate world is running circles around lawmakers in Washington, who still can’t get their stories straight.

Nevertheless, while our courts and lawmakers have mired themselves in an ideological debate rather than a practical one, economists have been busy anticipating the impact of the cannabis industry.

Current best estimates say that legal pot could become a $30 billion-a-year industry in the US, which is to say nothing of the potential tax revenue. In neighboring Canada, where medical marijuana has achieved official free market status, the industry is expected to exceed $1 billion within 10 years.

What we can probably say with certainty is that, in the coming years, we’ll see cannabis become “unbundled” from the larger discussions about drug addiction and dependency, the war on drugs, and the fear mongering that comes with it.

But the growth of the marijuana industry may also have a significant impact on another industry: drug rehabilitation. The thing is, those changes might not be quite what we’re expecting.

As an example of the sort of moral ambiguity that accompanies any discussion of drug use, I’ll give the example of 12 Keys—a rehab clinic in Florida. You won’t see it mentioned on their site, but their treatment plans for particularly embattled addicts sometimes include the use of cigarettes. It sounds radical, but it makes a kind of sense: so-called “gateway drugs” work in both directions, and in this case, the “lesser drugs” have been shown to help take the edge off the withdrawal and dependency symptoms associated with harder drugs.

Could the same be done with marijuana? It’s certainly possible, but not while our misinformed politicians are talking louder than the scientists.

In any event, the economic potential of cannabis is starting to get the attention of investors everywhere. We’ll see sooner rather than later whether entrepreneurial boldness can move this nationwide discussion in a productive direction.