Private equity is on the rise and to be even more specific, everyone is looking into how private equity relates to marijuana.
“I get phone calls from brand-name PE firms,” said David Denenberg, chief executive of Kind Financial, a firm providing financial services technologies to the marijuana sector. “They’re curious about the industry.”
And for good reason, too; the legal marijuana industry is alive in just four states that allow recreational sales and twenty-three states that allow medical sales and looks to hit up to $3.5 billion in sales this year according to a report from ArcView Group, a marijuana sector research group. In addition, sales are looking to grow at the very least 30% annually and maybe more as states continue to decriminalize marijuana. In fact, sales are projected to hit $11 billion in 2019. This number is just the marijuana itself and not all of the agricultural equipment and technologies that come with the industry.
“We’re squarely sitting in the growth-equity bucket,” stated Al Foreman, a partner at one of the leading investment management firms keyed in on the marijuana industry, Tuatara Capital LP.
The $3.5 billion that the industry is reaching is just a fraction of what could actually be reached since there are so many states that have not legalized any forms of marijuana yet. Marijuana sales were “pegged at $41 billion for 2013,” Rand reported in their research. Some even say that the marijuana industry is similar to the gambling industry because of how much of a portion of legal revenues end up taken out by illegal sales. For instance, in 2014, Nevada casinos raised $119.4 million in betting on the Super Bowl. However, according to the American Gaming Association, $3.8 billion was generated illegally by those gambling on the same event.
“This is not really analogous to the dot-com boom,” said chief executive of ArcView Group, Troy Dayton. “Technology booms are driven by innovation. The legal cannabis market is being by the shift in a market from an underground enterprise to an above-ground market. It’s a guaranteed market.” Dayton is so sure because the current use of marijuana may expand throughout the country and result in more customers far beyond the market now.
“Once retailers have a license to sell the product, we’re not just going to migrate the existing customers to cannabis,” founder of corporate finance firm Electrum Partners, Leslie Bocskor, said in an interview. “It’s going to allow a whole new base of customers to enter the market.”
