Outlook 2017: Out of the weeds

Private investors are becoming less concerned about the complicated stigma surrounding marijuana, recognizing viable – and legal – pathways into the market through existing and emerging funds.

After several additional US states voted to approve the legalization of marijuana for recreational use early last month, it’s likely that we’ll see more investors targeting this largely untapped market in 2017.

As we mentioned in a commentary last month outlining the potential impacts, financial services firm Cowen Group now estimates a $50 billion US market for legal marijuana sales in a decade, up from $6 billion today.

The approvals in California, Massachusetts, Maine and Nevada added to a list that already included Alaska, Colorado, Oregon and Washington state, along with Washington, DC.

Existing marijuana-focused fund managers were teeming with enthusiasm.  “The scales have been tipped,” Asher Troppe, chief executive with Tress Capital, a cannabis private equity fund manager, told me at the time. “Its credibility is becoming too apparent for the capital markets to ignore.”

We also noted that a recent Gallup poll had found nationwide support for legalization hit 60 percent, the highest level ever recorded; and in corporate America, Scotts Miracle-Gro and Microsoft were among those who had broken with taboo surrounding plant made significant investments into the industry.

Less than two weeks later, we first reported that the AP Investment Fund had fully invested the $12.6 million in capital raised through its inaugural marijuana investment vehicle, which is backing California marijuana dispensaries and a greenhouse property.

This marked one of the first instances showing that approvals were giving investors the confidence to move forward with plans.

Kyle Kazan, one of AP Investment Fund’s managing members, told Agri Investor that he and his partners had spent the previous two years identifying the right investments. The time had come to pull the trigger.

“This is an extraordinary time for the cannabis industry – almost like the end of Prohibition in 1933,” he said, referring to the end of the national ban on alcohol that year.

There’s something else to look out for. As marijuana gains momentum and legitimacy, many believe it will put more pressure on the federal government to relax its own stance, which still classifies the plant as a Schedule I drug – alongside drugs like heroin and LSD – and precludes its interstate sale, even among states where it is legal.

But private investors are already becoming less concerned about the complicated stigma surrounding marijuana, recognizing viable – and legal – pathways into the market through existing and emerging funds. This will likely draw significant private capital into the market in 2017 as they come out of the weeds.