Is This The Start Of “Big Marijuana”?

Now that there is some regularity to the operations of the legal marijuana industry, state Legislatures are ready to take the next step. The new name of the game is financing.

Mar 31, 2016

Washington and Oregon recently introduced rules allowing investors to finance the marijuana industry’s rapid expansion. Until now, potential investors were required to maintain a specific period of residency before being permitted to invest in the respective state’s marijuana industry. Washington imposed a six-month residency requirement and Oregon a two-year requirement.

Mom and pop no more

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For the last few years marijuana business owners have struggled to gain access to financing that would allow them to either start or expand existing marijuana related operations. When legalizing marijuana, states kept their focus on retaining the revenues generated by the sale of marijuana within the state economy.

“Washington justified the residency requirement claiming it would prevent marijuana from traveling into other states, but this argument is just silly,” he said. “In reality what it has done is stifle development of the marketplace.”—Patrick Moberg, Ephrata, Wash., attorney.

In the industry’s infancy it made sense to prohibit outside investors from financing potential marijuana businesses. By only allowing state residents with enough capital to enter the market, legislatures ensured that only (mostly) serious contenders would occupy the space, thus eliminating the trial and error associated with starting a business in a new industry.

Big Marijuana

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A common criticism of the allowance of outside investors is that their money will encourage the evolution of “Big Marijuana.” Though states intend to attract investment money to aid business owners in their pursuit of economies of scale, we have seen all too often that this model can backfire. As investors gain control of the industry, likely with a primary focus on generating revenue, there is a chance that the artisanal value, that defines the industry, will be eroded. Some worry that “will lead to the big business takeover of the marijuana market in Washington,” said Bellingham, Wash., attorney Heather Wolf, who represents industry entrepreneurs.

Washington, for example, has a plan to quell this threat. Washington decided that financiers would not be allowed to have an ownership stake in the businesses they back. Nonresident financiers will be limited to a 49% stake in any marijuana business they back.

More money more problems

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This fiscal year, Washington marijuana sales have generated $620 million, and put $119 million into the state tax ledger. Overall the marijuana industry has shown similar signs of financial success across all legalized states. However buried in the whopping revenues is another story. Not all marijuana businesses are thriving at the suggested rate.

“There’s only so many people willing to invest in this risky and new industry,” Colorado state Sen. Chris Holbert, a Republican, recently told the Associated Press, “so allowing people from out of state to become investors in this business … seems like a good idea.”

Some dispensary owners fear that outside investors will prey on their financial vulnerability. Others fear that potential investors could be backed by drug cartels or Big Pharmaceutical companies (might as well be cartels!) that will cannibalize the industry in the name of greater profits.

The marijuana market test continues

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Just as many stood by to observe the potential ramifications of marijuana legalization; there are those who are skeptical of this new financial development. Some of these very same observers were pleasantly surprised to see the immediate success of legalization, and hopefully critics of the new investment laws will be met with similar elation. Regardless of what the haters think, this observer believes we are taking another step in the right direction. If the power of the almighty dollar is harnessed correctly, we should see exciting new developments in the marijuana industry as a result of this new financial stimulus. Play on marijuana players!

What do you think about allowing nonresident investors in the marijuana industry? Would you be willing to invest in a dispensary? Let us know on social media or in the comments below.

Mar 31, 2016