The number one question that people ask me now that marijuana's legal is, "How can I make money off of 'the green rush'?"
I've been asked at parties, the grocery store and at a dive shop. People with a couple thousand dollars to invest want to know if it's possible for them to cash in. My answers are always prefaced with, "I don't give investment advice," but that doesn't quell their curiosities.
So, I decided to look into it.
First off, people need to know that while the legal marijuana industry in California is new, the industry as a whole is not. It's been operating successfully and on a large scale, even before it was legalized for medicinal use in 1996 — Humboldt, Mendocino and Trinity counties have been dubbed the Emerald Triangle for a reason. Now Proposition 64 makes it possible for black market growers and sellers to move into the legal arena, promising fierce competition in the new space.
The prospect of trying to break into the already established market can be discouraging, especially for those who don't have the significant startup capital that they need to be competitive.
So, if you don't want to be a grower, manufacturer or distributor, what can you do?
If you want to build your own business
"First thing I would ask anybody interested in this industry is, what do you already know? What skills do you already have? And how can those be applied in the cannabis sector?" said Troy Dayton, CEO and co-founder of the Arcview Group, an investment and market research firm in the cannabis industry.
According to Dayton, about 60 percent of the companies that his firm invests in don't touch cannabis at all.
"You know, everybody and their brother and sister wants to be a dispensary operator, or an infused product manufacturer or a cultivator. And the truth is, most people aren't bakers, they're not storekeepers and they're not farmers. But they are people who know how to build software. They are people that understand agricultural technology, or agricultural products, or business services, or insurance, or product creation. I mean, there's so many different things."
Imagine: a plumber or electrician who specializes in setting up grow houses, a nurse who's available to talk people through bad trips, or a bakery specializing in late-night, fresh-baked cookies. All could potentially serve markets tangentially connected to marijuana.
If you want to invest in other businesses
There are firms, including Arcview, that invest in other businesses — but the requirements to become involved with them are high. Arcview requires that people be accredited investors and that they're ready to dedicate at least $100,000 to investing in marijuana over the next few years. They invest in all sorts of businesses, even those loosely tied to the industry.
There are other firms, like MedMen Capital in L.A., that focus specifically on real estate and storefront operations. In addition to investing in land for grow operations, they have an arm of the company that helps people start and manage dispensaries.
But most of the people that I've spoken with can't afford to get involved with expensive firms, so many end up asking me about investing in stocks.
If you're interested in stocks
There are a number of publicly listed companies involved in marijuana. There's G.W. Pharmaceuticals on the NASDAQ, as well as several others on Canadian exchanges. Those are the ones that Alan Brochstein, who gives investment advice about cannabis companies, has been focused on.
"The Canadian market is very interesting right now, because people had gains last year of 300 percent or more," Brochstein said. "Not necessarily saying to buy them today, but this is where it’s at. ... So, that success this year has really translated into a new phenomenon where people are trying to find other types of opportunities to extend beyond just becoming a licensed producer in cannabis."
But the vast majority of publicly listed cannabis businesses are penny stocks, he explained.
"I always say that the vast majority of them are either outright scams or they’re going to fail. I track over 400 of them. I mean, just in general, penny stocks in general should be avoided, but it’s also the case with cannabis."
Brochstein said that there have been big ups and downs over the past seven months, including in December (the last time we checked in with him), both with reputable companies and with penny stocks. He said that he saw the same trend in 2014, when Colorado legalized marijuana. People seemed to be investing in the industry — not because they knew a lot about the companies, he said, but because they were related to cannabis in some way.
"I’m more concerned about people chasing stocks that don’t have a lot of fundamental value to them, into the stratosphere," he said. "There's a lot of people that are flooding into the market, they’re not informed and they’re looking to make a quick buck. And that is a dangerous environment."
If you have a great plan for cashing in on California's marijuana boom, let me know. My contact information is below.
Series: High-Q: Your California cannabis questions answered
This story is part of Take Two's look at the burgeoning, multi-billion dollar marijuana industry in California, with audience Q&As, explorations of personal narratives and an examination of how the industry is changing the world around our audience.