Are You Prepared to Invest & Start Up in the Mary Jane World?

February 20, 2017 • By

The unconventional marijuana business landscape.

The marijuana industry is fastest growing in industry in the U.S. today. The marijuana market was worth 7.1 billion in 2016 and is poised to rapidly reach 22.8 billion by 2020.

In short, the industry is loaded with cash. But it is a non-traditional startup community.

Banks don’t want to loan to you, store your money, or let you accept credit cards from customers.

Finding funding is one of the biggest challenges in the industry because businesses are treading on murky legal realms – working with a drug that may be legal in 28 states but nonetheless illegal at the federal level.

Much of the funding is distributed to a few startups, and little of anything to the rest.

Kush Angel is looking to break down this disconnect between a rapidly growing marijuana industry and a respectively stymied startup community, with the goal of introducing more entrepreneurs to more angel investors.

Funding Challenges

  • Most banks will not with cannabis businesses for loans, cash storage, or credit purposes.
  • A cannabis startup often needs more than $1 million to start a business in the U.S., with the biggest fees coming from licencing, initial capital, and rent.
  • The loan amount an average cannabis startup takes out from sources like private lenders is $750,000, and has a high interest rate because of the risks associated with the industry.
  • Institutional investors, such as pension funds, are forbidden to invest in federally illegal industries.
  • Cannabis businesses are not eligible for federal bankruptcy protection.

Investing Challenges

  • Since cannabis businesses are not eligible for federal bankruptcy protection, investors are more likely to lose everything if the business fails.
  • Finding the right business and asking the right questions, including tax, cash management, licensing, and most importantly, the company’s management.
  • Regulations, regulations, regulations. Ex. To own part of a cannabis company in a specific state, an investor must have lived in the state for a required amount of time. In Washington, it is for 6 months, and in Colorado, it is for 2 years.
  • The bulk of money in investments has been going to marijuana firms in Canada, where the their federal government has legalized medical marijuana use.
  • Social stigma around cannabis investing.

On the Bright Side

  • 2017 is the right time to invest. In fact, according to Investopedia in 2015, it’s been the right time for a few years now! There is an abundant room for innovation, and promising marijuana startups are being funded by venture capitalists.
  • There is a high demand for marijuana in America. Startups do not need to create a demand or spend extra funds introducing marijuana to their consumer base.
  • Startups benefit from the current absence of large corporations that are unwilling to “touch the leaf.”
  • There is a way for investors to avoid social stigma. Ancillary businesses, such as those dealing with seed-to-sale software and security for dispensaries, do not directly “touch the leaf,” and have a high demand in the industry.
  • Opportunities for private lenders are prevalent as long as banks are unwilling to work with cannabis businesses.
  • Investors benefit from the absence of big pension fund players. If the federal law changes marijuana’s scheduling status and the big players come online, investors will have the opportunity to sell their shares for big profits.

So what are you waiting for? Join Kush Angel today to invest and start up in the Mary Jane world!