A group of investors gathered in Colorado has agreed to pour more than $1 million into local marijuana businesses, a rush of publicly announced capital unusual for the pot world.
More than 60 marijuana-industry investors met with 22 startup weed businesses in Denver in late September. The investors are part of The ArcView Group, headed by Oakland dispensary owner Steve DeAngelo, and it was the first time they arranged investments directly with cultivators and sellers.
The cannabis businesses came to the meeting looking for capital, and they got it. ArcView members agreed to put down “well over $1 million” to various Colorado pot companies, ArcView CEO Troy Dayton told The Denver Post.
Marijuana as a Huge Investment Opportunity
The idea of investors openly pumping money into weed would have seemed impossible just a few years ago. But now that voters in Colorado and Washington State have legalized marijuana, investment opportunities are popping up left and right.
Dayton called cannabis “the next great American industry” when he opened the meeting. Just a month earlier, the U.S. Justice Department had announced it will back off of states that legalize marijuana, as long as they enforce certain federal priorities, such as keeping the drug away from children.
Now that the federal government has cleared something of a path, investors are more likely to see marijuana as a legitimate opportunity. But that doesn’t mean there are no obstacles to investment.
For one thing, Colorado’s marijuana law forbids equity investments by anyone who hasn’t been a state resident for at least three years. Without that restriction, The ArcView Group likely would have invested much more.
DeAngleo, the dispensary owner and ArcView president, told Bloomberg Businessweek 90 percent of the investors at the meeting came from out of state. That means the vast majority of them couldn’t invest – even though they wanted to.
“Colorado has an opportunity to claim a – if not the – leading role in the cannabis industry, if it’s properly financed,” he said. “It’s an opportunity to build the first big companies and the first big brands. But it’s going to be difficult for them to do that if they’re unable to get the financing that’s available to every other industry.”
Another problem for investors and the businesses they want to back arises in financial dealings. Because pot is illegal under federal law, it’s difficult if not impossible for cultivators and sellers to use banks and other financial institutions. Taxes, debts and other obligations are typically paid in cash.
That kind of arrangement discourages investment. U.S. Attorney General Eric Holder has said the Justice Department is “actively considering” ways to enable marijuana businesses to work with financial institutions.