How to Invest in California’s Cannabis Industry
November 14th, 2017
News, Top News
California’s cannabis industry could be worth more than $25 billion per year over the coming years following adult-use legalization next year, according to many analysts covering the industry. While there are many different opportunities across the value chain, investors may want to consider scalable and diversified operations to maximize their risk-adjusted returns given the industry’s volatility and significant pent-up demand.
In this article, we will take a look at the projected size of California’s cannabis industry and where investors should look for opportunities in the space, including FinCanna Capital Corp., which is a royalty company that has already made a name for itself in the space. CFN has previously covered the company and its plans to fund Cultivation Technologies Inc (CTI) to build CTI’s proposed Coachella Campus in southern California.
How Big Will the Market Be?
California already has a medical marijuana market that generates about $845 million per year in revenue with nearly 3,000 dispensaries, according to Marijuana Business Daily, which notes that it’s difficult to estimate the size of the market given a lack of statewide regulation. Other estimates put annual revenue at closer to $2 billion per year, saying that many dispensaries are likely underreporting their sales given the lack of oversight.
After voting to legalize adult-use marijuana on Proposition 64, California will introduce a statewide adult use marijuana program in 2018. A new state-sponsored study suggests that this market could be worth more than $5 billion per year and make the state a destination for so-called ‘pot tourism’. Other analysts believe that the market could be much larger given the explosive growth seen in states like Colorado and Washington.
Cowen & Co. believes that the nation’s legal cannabis industry could reach $50 billion by 2026, with California accounting for about $25 billion of that market. ArcView Market Research analysts similarly believe that the national legal marijuana industry will grow at a 31% compound annual growth rate to reach more than $22 billion by 2020, with California accounting for a majority of the revenue when the program scales up.
Where Are the Best Opportunities
There are many different opportunities in the legal cannabis industry, including cultivation, retail, and ancillary products and services. Cultivation offers the most direct exposure to cannabis, but could experience commoditization over time. Retail dispensaries could benefit from immediate revenue, but will likely face growing competition over time. And, ancillary products and services don’t enjoy the same regulatory barriers to entry as the rest of the industry.
The key to success is building diversified exposure to the industry to help mitigate any individual risks of each industry subset and benefit from the growth as a whole. At the same time, the companies building the largest operations early on will benefit from economies of scale as the industry matures, which can help preserve margins and expand revenue.
In Desert Hot Springs, MedMen and G FarmaLabs are both building cultivation facilities two hours away from Los Angeles. FinCanna Capital Corp. is a royalty company that invests in cannabis operations in exchange for a percentage of revenue. It’s initial partner, Cultivation Technologies Inc., is working on a large-scale project in Coachella, which when complete, will consist of an 111,500 sq. ft. facility housing a cultivation center, extraction facility, and ancillary support. Upon completion of the Coachella Campus, FinCanna will earn a royalty of 10% of revenue from the project as a financier of the operation and also has rights to fund future CTI projects.
Interestingly, FinCanna recently announced that it will share in 50% of the profits from CTI’s interim medical cannabis extraction facility that’s currently operating in Coachella. The new arrangement provides the company with a source of monthly revenue before the construction of CTI’s Coachella Campus is completed as planned. The lab has already begun to produce medical extracts for sale and is expected to remain open during construction.
FinCanna plans to go public in Canada this year, which could open the door to retail investors. In the meantime, investors can sign-up to express interest using the link below. Accredited investors have an opportunity to participate in its pre-public financing that could provide early access to the company ahead of its going public transaction.
There are also many ancillary businesses involved with everything from cannabis testing to packaging and labeling. For instance, Kush Bottles Inc. (OTCQB: KSHB) focuses on producing cannabis related packaging and keeps arms-length distance from the product itself, which remains illegal on a federal level as a Schedule I Controlled Substance. Other companies specialize in providing lighting technologies or growing equipment.
California’s cannabis industry is projected to be worth upwards of $25 billion over the coming years following the legalization of adult-use cannabis. Investors have many different options for gaining exposure to the industry, but FinCanna Capital Corp. represents one of the most compelling opportunities given its diversification and scalability. Investors interested in learning more can sign-up to receive more information here.
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