2016 Marijuana Investment Outlook

Investing in fast-growing industries is like sailing with the wind at your back.

When a sector is young and vibrant, opportunities for ambitious entrepreneurs are practically limitless.

And as regular readers know, marijuana is among the fastest-growing sectors in North America.

To review, the legal cannabis sector grew from $1.5 billion in 2013 to $2.7 billion in 2014, an increase of 74%. It’s expected to grow another 68% through 2015. That’s according to ArcView, a widely respected marijuana research firm.

The Washington Post reports that legal marijuana sales could top $35 billion by 2020.

My point is simple. Billion-dollar industries growing this fast don’t come along very often. It’s even rarer to find one with a clear path to continued growth for the foreseeable future.

But that’s exactly what we’re seeing with cannabis today.

In Oregon, for example, there are already more pot shops than Starbucks or McDonald’s.

Meanwhile, Colorado’s government will collect around $125 million in marijuana taxes this year (more than it’ll collect on alcohol).

Another six states will vote to legalize recreational marijuana use next year, says Fortune.

And in total, 23 U.S. states plus Washington, D.C., have now legalized medical marijuana.

Canada also appears to be headed toward nationwide legalization in the near future.

Importantly, places that have legalized cannabis are doing just fine. Marijuana use among teens in Colorado actually appears to be declining (perhaps now that it’s legal, it’s not “cool”?).

The nightmare scenario of chaos and crime that some predicted simply hasn’t come true.

This trend is only going to accelerate as more states pile on the legalization bandwagon.

Here’s how I summarize the choice faced by many U.S. states today:

1. Continue arresting people for consuming a plant with clear medicinal uses
2. Tax it and watch the money pour in.

Doesn’t seem like a very hard decision to make. I believe the cat’s out of the bag on this one. We’re headed to a future when marijuana use will be viewed as comparable to, or even less harmful than, alcohol. If you’ve been to Colorado, California, Oregon or Washington state lately, you know exactly what I mean.

Marijuana + Angel Investors

Despite the obvious appeal of the marijuana industry, startup investment has been lukewarm.

The primary reason is that, according to the feds, marijuana is still illegal. That means a majority of venture capital funds simply cannot invest. Doing so would violate their charters, which in most cases forbids investment in any activity deemed illegal by the federal government.

This is fantastic news for angel investors and smaller funds. Here we have an incredibly fast-growing industry, and the majority of traditional venture investors have been forced to exclude themselves from investment.

If you want to get involved, now is the time. In every state there are groups pushing legal reform forward. That’s a good place to start. There are also industry and investment meetups all over the world.

Here are four areas within the cannabis sector I’m keeping a close eye on in 2016:

• Delivery: Already a hot area of investment in 2015, delivery will accelerate through 2016 and beyond.

• Medicine: Marijuana has real medical value and benefits, of that I’m convinced. Finding quality investments will be tricky, but the potential is massive.

• Accessories: No truly dominant player exists, and customer demands are rapidly evolving. Big opportunities abound.

• Testing: Regulations often require marijuana to be tested for toxins and THC content. Options today are expensive and slow.

You’ll notice I didn’t include the most obvious option: growing the pot. I avoided this one intentionally, for a number of reasons.

First off, it’s going to be really crowded. Second, it’s going to be extremely highly regulated (for a while at least). Third, prices will likely continue to fall across the world for at least the next few years. Nobody knows how low prices can go, but I suspect it’s a lot lower than where they are today.

We’d love to know what readers think about investing in this dynamic and somewhat controversial space. Drop us a note in the comments and let us know.

Good investing,

Adam Sharp