By Omar Sacirbey and Bart Schaneman
Now that voters in seven additional states have legalized recreational or medical marijuana, business leaders and political observers are bullish about the potential for industry growth.
They point to surge in opportunities for interstate expansion, increased investor interest in cannabis and greater innovation in technology and business strategies.
“People should feel good about these victories and the opportunities that legalization brings,” said Kris Krane, managing partner of 4Front Advisors, a cannabis consulting firm in Boston.
But industry officials also warn that the new possibilities – including expansion opportunities – do not come without risk. Below are five business takeaways from Tuesday’s historic national election.
1. New markets lead to new ventures
Expansion will be fueled by the new recreational markets in California, Maine, Massachusetts and Nevada, as well as new medical markets in Arkansas, Florida and North Dakota. Montana, which legalized medical marijuana in 2004, also passed a measure to set up commercial cultivation operations and dispensaries.
“California was a monumental victory,” said Ethan Nadelmann, executive director of the Drug Policy Alliance. “The market opportunities are going to be extraordinary.”
The new medical cannabis markets are a ripe area, too.
“Any time a new state passes legislation, there’s substantial opportunity to provide care for patients in those states, and that’s a business opportunity,” said Kyle Kingsley, CEO of Vireo Health, a Minnesota company that cultivates MMJ for conversion into pill and oils.
“You can’t not look at a place like Florida and some of these other places that have substantial populations and meaningful medical cannabis legislation. All in all, opportunities abound following (the election).”
Some companies wasted no time announcing expansion plans.
Denver-based Leafbuyer.com, an online cannabis deals and information site, said it would expand into Arkansas, California, Florida, Massachusetts, Nevada and North Dakota.
There also will be new in-state opportunities for MMJ businesses where states added recreational cannabis on Election Day.
Van McConnon, COO of Nevada Medical Marijuana, said he’s “absolutely planning on transitioning to recreational.” He sees the rec market as an “extremely lucrative, phenomenal opportunity.”
2. Expansion pitfalls
Industry observers predicted California will attract interest from out-of-state businesses.
Nadelmann noted that California, with its population and marijuana market, is larger on its own than the four markets that already had legalized adult-use cannabis (Alaska, Colorado, Oregon and Washington) as well as the four states that had rec legalization on the ballot this year (Arizona, which failed, and Maine, Massachusetts and Nevada).
But expanding into California or other new markets could prove the undoing of companies unprepared to handle the costs and rigors of expansion.
“Some brands will try to establish a foothold in California, but it’s a competitive market,” said Morgan Paxhia, a managing partner with Poseidon Management in San Francisco.
“I think there are going to be some huge failures in the industry in 2017,” predicted Kayvan Khalatbari, founding partner of Denver Relief Consulting. “There are companies that are going to try to expand, but they’re going to find out that they’re overstretched.”
3. Increased investing on the horizon
If Poseidon Investments is any indication, the cannabis victories on Election Day are already spurring increased investor interest in the cannabis industry.
“Phone calls and emails (from potential cannabis investors) have been coming in throughout the night, and it hasn’t let up,” Paxhia said. “This is a landslide victory, and people who waited to get in on this until after the election don’t want to waste another second.”
Taylor West, deputy director of the National Cannabis Industry Association, believes the nation’s cannabis industry is poised to triple over the next few years.
“And for a lot of investors, that’s an opportunity that they’ll find hard to pass up,” she said. “There’s going to be a massive expansion in the industry, and that’s going to catch a lot of people’s attention.”
Institutional investors, meanwhile, will likely remain reluctant about cannabis because it remains illegal at the federal level. But a growing number of wealthy individuals, family offices and individuals who work with investment and venture capital firms will drive an increase in canna-centric investments.
“I think this will be a pretty big shot in the arm for investment,” Kingsley said.
4. Investments = innovation
“Historically, this industry has been underfunded,” said Paxhia of Poseidon Management. “But if we see more companies getting more capital, they’ll be able to hire more staff, expand their facilities and invest in the things you need for innovation.”
Continued falling prices for cannabis will also drive businesses to explore cost-cutting innovations such as automation, whether it be in cultivation, retail or some other niche, Khalatbari said.
“The innovation progress that companies need to make will have to come in operational efficiencies, because prices will continue to drop,” he said.
5. Will more states follow?
Cannabis industry officials are hopeful the slew of Election Day victories will encourage other states to move forward with legalization, either through ballot measures or state legislatures.
In 2016, for example, one recreational legalization bill made headway in Rhode Island while another essentially died in the state assembly after passing in the senate. Now that Maine and Massachusetts have passed recreational marijuana, perhaps more legislators in Rhode Island and Vermont will accede to legalization, reasoning that cannabis consumers in their state will buy product in Maine and Massachusetts – which would reap the tax benefits – if they can’t buy at home.
“This will be a game changer, East and West,” said Adam Fine, head of the Boston office of the Vicente Sederberg law firm.
Omar Sacirbey can be reached at [email protected]
Bart Schaneman can be reached at [email protected]