The legalization of recreational marijuana use has led to the creation of dozens of publicly traded companies seeking to carve out a space in what may be a potentially large growth industry. Now that the initial blush has worn off, however, these dozens of companies face the demands that all publicly traded companies have to confront: a sustainable business model led by a management team that has the experience and skill to execute to that model.
The single largest overhang for the industry remains federal law, which still prohibits marijuana use and prevents the industry from developing some of the most fundamental aspects of a thriving business. We have written before of the problems cannabis-related firms have establishing something as basic as a business bank account. Until federal law is changed to allow wider use of cannabis, the industry will continue to struggle with growth.
The other side of that legal coin is the continuing presence, even expansion, of illegally grown marijuana, which has the effect of keeping prices down. Ironically, perhaps, the industry is going to need some help from law enforcement in order to help stabilize prices for marijuana.
Investment firm Viridian Capital & Research recently published its outlook for the cannabis industry in 2015, including a look at some 75 companies that participate in the various sectors of the industry. Viridian noted that marijuana-related firms raised $80.4 million in capital during 2014, with the three largest segments being consulting services ($20.1 million), ancillary cultivation and retail ($18.9 million) and biotechnology ($12.3 million).
Viridian also maintains an equal-weighted total return cannabis index that posted a gain in 2014 of 38.4%, primarily on the basis of a 939% return in the first quarter of last year. That is when sales of marijuana first became legal in Colorado. Sales began in Washington in June. Consulting services posted the highest return, 170%, followed by biotech (nearly 85%), infused products (57%) and cultivation and retail (33%).