The Risks and Rewards of Investing in Marijuana: Part 3 of “Investing In the Legal Cannabis Industry” webinar from Retirement Loft
June 30, 2016
June 30, 2016
Jay and Diane speak with Tom Garlock of Retirement Lofts regarding Marijuana as a big opportunity for growing retirement portfolios as the industry takes off. Watch the video below, and scroll down to read the transcription. Part 3 starts at about 18:26 into the video.
I could tell you when Di and I started our first dispensary, and this is back in 2009 when nobody really had much of a clue what it was going to take or where this whole industry was going to go, I think we put about $20,000 each into it, and we were off and running. Today, if you wanted to get serious about putting up a competitive cultivation facility, you’d be looking at over a million dollars, in some situations $5 or 6 million.
For a dispensary, it’s certainly a lower barrier of entry. A dispensary is really nothing more than a higher-end retail shop with some added security and other systems, of course. It’s possible to get into a dispensary operation for as little as $200,000 or $300,000.
Timing to generate revenue.
I could vouch for the fact that it is not instant riches. However, if you have a good plan and you work hard and work smart, just like any other industry, you could do quite well in the cannabis business. I think 18 months is probably the short end of what it’s going to take to get a return on your investment. I’ve seen returns less than that, but certainly after 18 to 24 months, any operation should be up and running and making a good return.
Resale options, that’s interesting.
There are folks that are currently selling their operations for a reasonable multiple, and after putting in three or four years of hard work, we’re seeing folks approaching some fairly significant exits.
Building of the national brands.
This is something that’s really starting to take off, just starting last year in 2015. Up until recently, there really haven’t been any well-established brands. There are a few, certainly. Dixie Elixirs always comes to mind. But, especially when it comes to dry flower products, there’s really no brand out there. Folks are really beginning to concentrate now on building trusted brands. There’s certainly opportunities for existing edible companies that want to expand. Most of these expansion plans require local partners in new markets, i.e. new states … Which leads right into distribution and franchisee opportunities not only for existing edible manufacturers, but chains of dispensaries.
Risks to consider.
Enforcement of federal laws. Now, I could tell you six, seven years ago, that was a pretty serious risk as DEA raids would happen from time to time. These days, I really don’t see the genie going back in the bottle. This industry is here to stay. It’s interesting to note that whoever is elected as our next president, chances are, there will be a number of states that voted marijuana legalization in favor at a much higher margin than votes electing the next president. In other words, I think in many states, marijuana is going to be much more popular than our next president.
Changing public perception.
I don’t really consider that much of a risk factor, unless you look at that in terms of public perception is changing so fast, I think more and more people want to get into this industry. If anything, that would lead to potentially more competition.
Health and safety concerns really factor in when you’re looking at contamination of marijuana and marijuana products. Testing requirements have been slow to evolve, but they’re catching on. A number of states have very strict testing requirements, and even the states that do not currently have strict testing requirements, those states are implementing the better programs. Some unscrupulous growers may use pesticides and fungicides that could be dangerous to people. Therein lies the health and safety issue, but that situation is changing and getting better.
State regulations certainly pose a little bit of a risk.
Some state regulation seems to change. Here in Colorado, regulation could change on a weekly basis sometimes. Cost is extra expenses, mostly for the edible manufacturers. Depending on state regulation, it’s something to watch.
Local laws prohibiting medical or adult use sales. There are local moratoriums. You certainly don’t want to go too big and invest too much in your town or any local municipality without first reaching out to the local officials and finding out where they stand, because certainly a local moratorium or ban could sink your plans in any given state.
Lack of industry experience is certainly a risk.
I can tell you that when Diane and I got into the industry seven years ago, we Googled “commercial marijuana growing,” and the only thing that came up were a couple of news stories on some police raids, I think up in Canada and California. More and more industry expertise is developing, so certainly these days, for new folks that want to get into the industry, there is a means to contact groups, professionals such as ours. There’s other big companies out there in addition to ours, folks that have expertise on staff that are able to help others get into the industry.
Now I’ll turn it over to Tom.
Tell us about the investment timing.
Thanks, Di. You know, I’ve been doing research on the industry the last couple of years, and what attracted me to do the webinar today was really just my sense that the timing is better now than ever. It’s not too early, where, as Jay mentioned, the DEA is raiding those that have licenses for some kind of a violation, and it’s not too late. We’re only in, maybe it’s safe to say, the beginning of the first inning, knowing that there’s a $50 billion industry and only $5 billion of that amount is being provided through the legal channels that exist. My personal opinion is that the timing is worth considering an investment into the industry.
The other choice as an investor that you’ll need to make is whether you want to play an active role, meaning you want to apply and obtain a license and build a business, or you want to take the opposite approach, and that is to be one of the passive investors. By that, I mean providing capital to the person who wants to apply for and acquire the license, or set up a cultivation facility, set up a dispensary, or possibly go into the other aspects of the industry that don’t require license. As Jay had pointed out, there are the picks and shovels companies out there that I think provide some very interesting opportunities.
I would share with you that I think in this industry more than others.
Because of its early stage, you need to diversify your investments and not put all of your eggs into one basket.
In order to pick the right place to enter, it’s my belief that education is absolutely mandatory. You need to do your research on the industry, I think you’ll find it pretty exciting, and we’re taking some steps to help you do that. We have put together a number of research reports. Everyone on the call today will get an email in the next day that will give you links to many of the reports that we’ve put together.
There are a couple of places you can begin research now.
I believe on the next slide we have a list of a couple places that I turn to often. The Marijuana Business Daily. Jay and Diane have been members, maybe founding members, of this organization from the beginning. They do conferences and they have interesting reports that come out each day. It is an online newspaper, and there’s news of all types about the industry that you’ll find in Marijuana Business Daily.
Another interesting site is the Marijuana Policy Project. That’s the site where you’ll be able to keep up to date on all the initiatives, all the laws that are changing. That’s the number one organization, in my opinion, that’s pushing the legalization for both medical and adult use across the country. You’ll want to check out mpp.org when you get a chance.
Another way to get some education is to actually meet Jay and Diane and myself at the Marijuana Business Conference and Expo, coming up in Orlando from the 9th til the 11th of this May. It’s held at a beautiful resort, the Gaylord Palms Resort in Orlando. To get more information on the conference and to register, go to their website, which is mjbizconference.com. Jay and Diane have been kind enough to give you their discount code. You’ll save $50 on registering. I think we’ll put together a workshop or meetings, but we’ll be there to meet with anyone interested in learning more about the industry and maybe becoming an investor in this space as well.
I want to thank you for joining us. Jay, Diane, great job. Thank you. Any closing comments that you will want to share with us before we wrap things up?
Tom, thank you, and I would like to mention one more thing. This is something that I’ve been mentioning to a lot of folks lately. You know, there are a lot of companies that have been involved in this industry for five, six, seven years that are well-established. At the same time, most folks realize this is the next great American industry, and there’s a lot of talented people that want to get involved. I always tell them the same thing when they ask, “Is there time? Is there room in this industry to get involved?” The answer is absolutely, and here’s why. As big as this industry is right now, it’s only 5% to 7% of what it’s going to be when it’s built out across the country. There is absolutely opportunities for many people to unseat some of the established leaders, because there’s just that much more room for growth within this industry.
I’ve got a quick question for both of you.
The type of clients that you’re looking to work with, is there a common thread that runs through them? Where do you feel you can have the most impact and provide the most help? What type of people are you looking for as clients?
The best groups, typically, that we’re able to work with are just thoughtful, humble, intelligent folks with a good business background that want to get into the industry for the right reasons, those being certainly to make money but also because it’s the right thing to do. What do I mean by that? The prohibition of marijuana, it’s a human tragedy, and those that want to get involved not just to make money but because they want to help people and they want to end this ridiculous drug war, those are the type of folks that we like to meet.
Fantastic. Well, we hope to have many of the audience today participate. Join us in Orlando. Get to meet these two fine people and many others that I’ve come to know that are part of this industry that are really making a difference.
Jay, Diane, thank you very much. We know how busy you are, and I appreciate you taking some time out to record the webinar today. Thank you, everyone, for joining us today. Watch your inbox. You will get some additional information from us. Feel free to reach out to us if we can answer questions or help you decide which part of the industry is going to be most lucrative for you. Thanks again, everyone. Have a great day.”
The original webinar from Retirement Lofts can be found here.