How to Invest in a Cannabis Business

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How to Invest in a Cannabis Business

Jan 05 2023, by Jessica McElfresh in Marijuana Business

With the legalization of cannabis spreading exponentially over the past decade, many anticipate growth to only increase. Some claim that now’s the time to get some skin in the game before the industry explodes to a projected $176 billion by 2030.

However, given current federal legal restrictions, investing in marijuana is tricky—but still possible if you exercise prudence.

Where is Cannabis Legal?

The real question is, where is cannabis not legal? It seems like a new state legalizes marijuana every year. Currently, medical marijuana is legal in 38 states, and 19 states, including Washington, D.C., have legalized recreational use.

Although cannabis appears to be legalized in some capacity across the map, federal law still places restrictions on the substance, making it hard to invest in the cash crop.

What to Know Before You Invest

Like any savvy investor, you must know the risk versus reward before you put your money into the marijuana industry. The fact that marijuana is federally illegal creates a lot of issues for investors. First, the industry’s potential is at the mercy of lawmakers.

Although the industry has a bright future, it’s dependent on everything continuing to go the way it has been for the last decade. If the legislation doesn’t evolve, making marijuana legal in more states and one day federally, an investment’s potential could be capped.

Types of Marijuana Investments

Marijuana is a unique industry with many areas to invest in, given the different markets available, including:

  • Cultivators – These are companies that specialize in farming and cultivating cannabis
  • Retailers – These are dispensaries that distribute cannabis directly to consumers
  • Manufacturers – These companies focus on creating cannabis products, including prepping, packaging, and more

Different Ways to Invest in Marijuana

Now that you know the types of investments, let’s break down different ways to invest directly in cannabis businesses.

Start Your Own Business

Going all in on starting your own cannabis business is one of the best ways to invest in the industry. The good thing about this option is that you get to keep all the revenue your business generates. On the other hand, you must also own all the responsibilities associated with operating your new venture.

However, with time, education, and legal guidance, you could navigate the obstacles of starting a marijuana business and capitalize on the growing market.

Put Up the Money for Someone Else

One of the hurdles many face when starting a marijuana business is capital. They simply don’t have the cash needed to realize their dream, and they can’t take out a bank loan since weed is still federally illegal.

That’s where you come in. You could directly invest cash into their operation to jumpstart their business and obtain a little equity in the process.

With this option, you could avoid the operational side of the business altogether. You simply front someone with the cash they need, and you benefit from the business’s future success.

Buy Real Estate

Maintaining proper zoning permits that abide by state regulations can be a hassle for cultivators. However, if you already own real estate that entrepreneurs can grow on, you could sell or lease the property to them.

This is a win-win because you receive money from letting them use your land, and the growers avoid the legal process of acquiring property for marijuana cultivation.

Invest in Cannabis Ancillary Businesses

While marijuana remains the primary investment, many ancillary companies have sprouted up that support the industry as a whole—one being the business of cannabis accessories.

Companies that sell accessories like vapes often work around legal hurdles since consumers use their products for both tobacco and marijuana use. Other businesses like packaging and labeling companies or even accounting services are also examples of ancillary services.

Other Ways to Invest in the Cannabuisiness

You might consider other ways to invest in marijuana, such as buying stocks or ETFs. It should be noted that any investment, whether through stocks or ETFs, is not without risk as they tend to change over time.

You should conduct your own due diligence when choosing how to invest in a cannabis business, and stocks or ETFs might not be the right option for you.

Marijuana Stocks

Since marijuana is federally illegal, not many U.S. cannabis companies are publicly traded. These companies are forced to list Over-the-Counter stocks, which can be problematic since they don’t have financial records.

However, there’s still a way for you to invest in marijuana stock. Canada legalized marijuana recreationally in 2018, and many Canada-based cannabis companies are listed on NASDAQ and the New York Stock Exchange. One tip for investing in marijuana stock is to look for companies with large market caps that enable more long-term investing.

Marijuana ETFs

ETFs, or exchange-traded funds, hold multiple underlying assets, contrary to putting your money in individual stocks. This allows you to spread your investment risk through diversification.

Need Help with Your Cannabis Business? Call Today

 The cannabis industry is considered the new frontier for entrepreneurs. Therefore, you need a legal advocate prepared to mitigate your risk in uncharted territory.

That’s where Jessica McElfresh comes in. McElfresh Law is dedicated to providing legal support for your success in the cannabis industry and defending you if you’re in trouble with the law.

Call McElfresh Law today at (858) 756-7107 to get the legal guidance you need to navigate the murky waters of the growing cannabis business.