Every entrepreneur dreams of discovering an untapped market where they could start with a low investment and build a huge business. If that’s you, consider the developing legal marijuana industry.
This sector is growing faster than ganja under grow lights.
The best part is, it’s early days for this — cough — budding sector.
Marijuana is now legal for medical use in just 23 of the 50 states, and will soon be legal for recreational use in four — Alaska’s law goes into effect later this month, Oregon’s in July, and in Washington and Colorado, it’s already legal. Alaska’s addition to the legal-pot state roster has some wags dubbing the legal-pot opportunity the “Green Rush.”
Now that full legalization is spreading from state after state, many sector observers believe it’s just a matter of time before more states get on the bandwagon, and before marijuana becomes federally legal. The spread of legalization will open up huge new markets — and startups that get going now will be ready and waiting to take advantage of the increased demand.
The U.S. economy doesn’t spawn an entirely new industry very often, and legal pot may well be the best ground-floor opportunity we’ve seen since the early days of the Internet. While there are some established companies in this niche already — especially in Canada, where medical pot has long been legal — new figures from the Marijuana Business Factbook 2014 map reveal how young most cannabis businesses are, and how quickly they’re becoming profitable.
A sector of dirt-cheap startups
The competitive landscape is full of young companies, too. Less than half are even three years old, the Factbook found. Of the rest, 4% of the businesses surveyed reported they started in 2012, 21% launched in 2013, and 30% are a year old or less.
Most businesses report their startup costs were modest. One-third of cannabis wholesalers say they put in less than $50,000. Some 14% spent between $50,000-$100,000, and 24% spent between $100,000-$500,000. The remaining 29% spent $500,000 or more, with just 10% of those reporting they spent over $1 million.
Almost half of small, home-growers — known in the industry as “caregivers” — invested less than $10,000 in their startup. The other half reported they spent $10,000-$50,000.
Early profits
For such a young industry, it’s notable how many of the companies report they are profitable. The Factbook found over half are already operating in the black.
The full breakdown:
- Only 3% said they are seeing “significant losses”
- 15% are “losing some money”
- 28% report they’re at breakeven
- 38% are “modestly profitable”
- 16% report they are “very profitable”
Profitability is coming quickly, too — 62% of the businesses said they were profitable within 12 months. Only 6% said it took more than 3 years.
Investors are interested
Even a couple of years back, most investors wouldn’t go near this sector. But last year, angels and venture-capital investors jumped in and started backing cannabis companies, most prominently with the high-profile investment in pot-focused private-equity firm Privateer last month, by Peter Thiel’s Founder’s Fund.
That’s the best-known bet on legal pot, but far from the only one — quite a few pot startups have already raised over $1 million. Investors have shown interest in various types of cannabis-related businesses, too.
The top seven investment categories the Factbook found are:
- Cultivation/operation
- Medical dispensary
- Legal recreational retailers
- Edibles/infused product makers
- Service firms (security, software, and setup consulting are big here)
- Ancillary products
- Legal hemp products
Takeaway: You don’t need expertise in growing pot to make a killing in the legal cannabis industry. There’s room for innovators in software, baked goods, retailing, and more.
High-value customers
One final reason legal cannabis is a desirable sector to enter: customers spend big. While Americans famously spend an average of over $1,500 a year on their pets, a cannabis consumer spends $1,869 on their habit.
Is there risk here? Most certainly, as in any burgeoning sector where legal rulings might change the whole game overnight — or make the marketplace shrink or disappear. But for many entrepreneurs who’ve tried it so far, legal pot has been a quick ticket to green.
#GetBudStamp The Mobile Marijuana Loyalty app with a Smart Stamp for Simple, Secure, and Verifiable Loyalty.
Loyalty Up In Smoke 