2018 was a notable year for cannibis-related companies by raising about $13.8 billion dollars compared to $3.5 billion in 2017 according to data from Viridian Capital Advisors, a financial and strategic advisory firm for the cannabis industry.
The following factors delineates the reason for this spike.
1. Legislative changes in three states contributed to the increase indicating that continued growing support of the public in legislation has enticed tobacco and the beverage industries to invest in cannabis products.
2. The size of deals became much larger, averaging over 23 million in 2018. 2017 only produced 8 million. Once deals get bigger other investors have to also compete creating a positive feedback loop.
3. Some of the surge in investments came from big players such as Corona-maker Constellation Brands who a dropped $4 billion stake in Canopy Growth. Other players were a joint venture of Molsons Coors of Denver and the Hydropothecary Corporation out of Canada.
4. Pitchfork’s data claims that the value of venture capital deals in the U.S.A. doubled from 2017 to 2018 in the marijuana business. Private equity investments increased by a third.
5. Canada’s recent nationwide legalization of recreational use of cannabis has demonstrated an upswing in investment and 2019 will be a proving ground for more investment.
6. The U.S. presents logistic problems because marijuana remains federally illegal and commerce is banned. Therefore, many operate more than one facility in the current isolated areas or they open new facilities in new states. Doing this requires more capitol.
7. Multi-state operators such as Cresco, Green Thumb, Columbia Care and etc. have invested over a $100 million because they have built their businesses around multiple markets.
8. U.S. businesses that are smaller are relying on brand awareness such as CBD oil. These product lines have also drawn investments. Since hemp has been officially legalized this opens up the market.
9. The Viridian president-founder Scott Greiper predicts that 2019 will be even larger in investments and acquisitions and may generate over $23 billion. The last factor to consider is that the public is more in support of legislation and the Surgeon General has been leaning toward the federal government rescheduling marijuana for more medical research.
Final note: The U.S. is becoming more comfortable with cannabis and greater amounts of capital used for cannabis investments in the private and public sector will eventually lead to the U.S.A. becoming the biggest market in the world.