Cannabis Cleans Up Well: 5 Events Signaling Professionalization of Industry

Cannabis Cleans Up Well: 5 Events Signaling Professionalization of Industry

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Legal medical cannabis debuted in California in 1996, and it has had a slow state-by-state rollout ever since, with 25 states and Washington, D.C., now permitting some degree of its use; as such, the industry has to navigate an irregular web of state-level regulations, which has forced investors and entrepreneurs to raise the bar.

From industry members in the trenches to suits in corner offices, here are five events that show cannabis cleans up well, signaling the professionalization of the industry.

 

VCs Investing Millions

On Feb. 29, 2016, CB Insights released a report on venture capital investments in the legal cannabis industry for 2015. According to the report, VCs invested in 98 cannabis-related deals in 2015, totaling $215.2 million.

The year was sandwiched by high numbers, with Q1 logging $94.2 million in deals and Q4 banking $67.9 million.

From initial pitch to official closing, cannabis startups are learning how to seal funding deals. The ability to pitch successfully encapsulates the ability to build rapport with potential investors and execute a business plan, a skill realized by adept individuals.

With venture capitalists believing in the legal cannabis industry to the tune of $215.2 million in 2015, VCs are helping cannabis startups cement the foundation of an industry with a promising future.

 

Alternative Funding

Venture capital seems to be pouring into the cannabis industry, but some savvy entrepreneurs are successfully harnessing alternative means of funding to infuse their endeavors with capital. While some tap into traditional funding, others tap into accelerator programs, debt financing and crowdfunding.

As far as accelerator programs, CanopyBoulder in Colorado was a first mover in the cannabis space, launching in 2014. Gateway, an Oakland-based cannabis business accelerator, was launched at the end of 2015. On May 4, 2016, Good Life Colorado launched a touch-the-plant accelerator for entrepreneurs to develop products in a licensed marijuana-infused-products facility.

For those beyond the incubation and acceleration stage of funding, debt financing allows an entrepreneur to borrow capital from a lender, with a fixed interest rate and a predetermined maturity date, enabling access to capital needed for growth while preserving equity and retaining control of a startup.

Crowdfunding has created perhaps the most buzz in the world of alternative funding. On Sept. 23, 2013, Title II of the JOBS Act went into effect, eliminating the ban on general solicitation and advertising for Rule 506 and Rule 144A offerings, opening up private placement potential for startups seeking to crowdfund from accredited investors.

Startups looking to the general public for financing greater than $1 million had to wait until March 25, 2015, for the SEC to announce that it had adopted the final Regulation A+ rules, enabling private companies qualified by the SEC to offer and sell up to $20 million worth of securities under Tier 1 requirements, and up to $50 million under Tier 2 requirements, to both accredited and non-accredited investors.

Regulation A+ could be a game changer for the legal cannabis industry by letting everyday cannabis consumers financially support the companies they love.

“The Regulation A+ has really given us all opportunity, especially in this sector,” said Matthew Mills, COO of Med-X, a multi-divisional cannabis company focused on medical research, agricultural products and digital media.

Med-X was the first cannabis company to be qualified by the Securities and Exchange Commission to sell shares to the general public through Regulation A+, and its offering went live on February 9, 2016 via StartEngine.com.

Funding can transform a back-of-the-envelope idea into a legitimate business. With alternative funding now an option for those who may have had limited access to traditional funding, startups harnessing this option are upping the ante in what is becoming a competitive cannabis marketplace.

 

Sales Skyrocketing

While money from VCs and alternative funding has been talking the talk, the industry’s sales have been walking the walk.

On March 22, 2016, ArcView Market Research, in partnership with New Frontier, announced in the State of Legal Marijuana Markets, fourth edition, that the legal marijuana industry currently has a compound annual growth rate of 31% and a market estimate of $5.7 billion.

According to the report, adult use market sales had a 232% year-over-year increase, growing from $374 million in 2014 to $1.2 billion in 2015.

This type of explosive growth doesn’t happen by accident, it happens when individuals united in a common goal are able to work together to create collective success. From farm to flame, every link in the supply chain contributes to the industry’s total market sales. The sales growth in 2015 is a testament to this industry’s ability to secure its legal future.

 

Mergers & Acquisitions

With sales skyrocketing, venture capitalists investing and alternative funding securing the future of legal cannabis, the industry has made a natural progression into the professional world of mergers and acquisitions, attempting to create greater value by combining companies.

On June 24, 2015, it was announced that two of Canada’s biggest brands in the country’s burgeoning cannabis market would be under one roof: Tweed Marijuana Inc. (TSXV:CGC) agreed to acquire all the outstanding shares of Bedrocan Canada in an all-stock deal valued at approximately $60 million.

M&A activity hasn’t been limited to Canada, as the inevitable wave of cannabis consolidation has started to roll into America. On Jan. 12, 2016, Terra Tech Corp. (OTCQX: TRTC) announced a definitive merger agreement with Black Oak Gallery, DBA:Blum Oakland, a medical cannabis dispensary in California, with Terra Tech acquiring 100% of Blum’s outstanding shares.

These two deals represent actual M&A activity in the cannabis space, not infamous reverse mergers, and signal that there are players in the industry interested in creating shareholder value and focusing on long-term strategy.

 

Professionals Joining Industry

Because cannabis is moving out of the black market shadows and into the light of a legalized marketplace, positions that are commonplace in traditional markets are now being created in legal cannabis and filled by professionals from other industries.

The movement of professionals from other industries into cannabis isn’t to push out the old guard of cannabis, but rather to bring it up to speed so that it can reflect upon the past as a means of creating the best possible future.

Privateer Holdings, a Seattle-based private equity firm focused on the legal cannabis industry, has taken the lead by hiring Dante Tosetti, formerly a Federal Reserve Bank Examiner, as Director of Treasury Compliance, and Patrick Moen, a former DEA agent, as managing director and general counsel. With these two former federal officials on its team, Privateer likely has an upper hand in navigating the state and federal divide on legal cannabis.

When FDA barriers change, regulations deal fortune to some and hardship to others.
As far as navigating such barriers, Quantum 9, a cannabis consulting and technology firm, has the advantage of having Stephen Goldner as Senior Forensic Toxicologist, as Goldner was on the team that developed the first commercial laboratory chromatography tests for drugs, launching the drug screening industry in the 1970s, and developed, with his mentor John Broich, the liquid dose form of methadone, which gained FDA approval and allowed Goldner and Broich to start, grow and successfully exit a company manufacturing methadone.

While professionals are entering cannabis from regulatory areas of expertise, they are also entering the culinary sector of cannabis. Mindy Segal, celebrity chef and restaurateur, is working with Cresco Labs, the largest cannabis cultivator in Illinois, on an edibles line that includes infused chocolate brittle bars, granola bites and chocolate drinks.

Medical professionals are perhaps the most important professional entrants to the legal cannabis industry. Dr. David Toomey, CEO and Director of Med-X Inc., has been a family physician for more than 24 years and a Hospice Medical Director for the past 10 years. Having worked with the elderly and witnessed how medical cannabis can affect quality of life, Toomey wants to empower patients.

“People want and deserve the right to know what is in their medicine. As a physician, my goal is to always to do no harm. Why would anyone want to recommend something that could be doing more harm than good?” Toomey said in an interview with The Marijuana Times.

 

The Takeaway

Whether you’re an onlooker, new market entrant or cannabis veteran, the five aforementioned events signal the professionalization of the industry. If your company can clean up well in one or more of these ways, you may be able to cement your position in the increasingly competitive cannabis marketplace and demonstrate that cannabis can do business the right way.

This content was created by MJINews and made possible by our sponsor. It does not necessarily reflect the views of MJINews' editorial staff.

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