It has been almost a decade since marijuana—weed, pot, ganja, bud, the stuff that makes Family Guy bearable—was declared the biggest cash crop in the US. It’s an assertion that was made even before the stuff was fully decriminalized by any state or other local jurisdiction and one that’s been steeped in controversy ever since.
Now, with medical marijuana legal in 23 states plus the District of Columbia and full legalization on the way in several places (as long as you don’t ask the feds), the profit potentials are only growing.
Legalization has sparked a startup and investment craze, and some of the resulting THC-fueled businesses are no doubt poised to bogart a substantial share of the multi-billion dollar industry. Others, though, seem little more than venture-backed pipe dreams.
The fact that marijuana is at least partially decriminalized in nearly half of the United States—and can be obtained with relative ease everywhere else—means consumer-facing marijuana startups are facing an uphill battle. Several apps and services are battling to become the “Uber of weed,” connecting users with providers and offering on-demand delivery, but this isn’t as revolutionary as some investors seem to think.
Mostly Smoke and Mirrors
Other than offering an app-based ordering system, the marijuana-on-demand model being pursued by many startups is nothing new. Weed delivery is already a thing in many markets, including some where marijuana possession is still entirely illegal. While there’s always room for new entrants to make some money, there’s no real disruption going on here; success and failure won’t be a matter of innovation so much as a matter of quality of product and service, price, and operational efficiency—same as if they were delivering pizza.
To take advantage of marijuana legalization, startups and investors need to be looking at what has actually changed as a result of legalization—because it isn’t demand or consumption.
It’s production.
If I were looking to invest in a marijuana business more than an eighth at a time, I’d be looking for apps and companies that help grow-ops become more efficient: algorithms and tools that measure sunlight, soil nutrients, and other sciency stuff to allow growers to maximize their yields and perhaps even manage from afar.
I’d want to put my money in companies that help dispensaries and head shops navigate the changing laws in individual states, and that can help their clients prepare for interstate sales and shipments. Personnel tracking and rating tools so “field hands” can find more steady employment and grow-ops can get reliable harvesters when and where they’re needed.
Marijuana testing services, required in some jurisdictions before a particular batch can be put up for medical/recreational sale, are also budding with growth opportunities.
In short, we need more startups looking at the supply side of the pot industry—the demand side has been on fire for years, and has yet to produce any mind-altering innovations. So I’m not exactly holding my breath…metaphorically speaking, of course.
Daniel A. Guttenberg is an Atlanta-based writer who fell into the startup world by accident and has been gleefully treading water ever since. He will be survived by his beard and his legacy of procrastination.
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Since the first talk of actual legalization this has been a fun topic to keep an eye on. So many changes, so many different things can be done with a business like this and each state is going to see something a little different.
It will be neat to see the very first, large production farm of marijuana. It is only a matter of time before a corporation gets into this and is producing a major amount of the legally sold marijuana in the United States.
I think the big players are waiting for federal legalization (or at least decriminalization), but I’m sure they’re ready to jump in.
My thoughts exactly. As soon as they are able to produce enough to make it worth THEIR while and worth the resources to have a major grow operation, the farms will be built.
Yeah, in order to really make it big and make some HUGE money, you are going to have to be growing it. That takes a major initial investment, but in the long run, you are going to have the cheapest product to sell.
I think we might end up seeing distributors making the most profit. Right now a lot of growers sell direct to dispensaries and shops, but as legalization spreads I’m betting third party logistics becomes a big part of the industry, just like liquor/beverages.
Just like with anything else that becomes legal, or a trend or whatever, the businesses take off and ideas come out of the woodwork. These startups all have a chance, but only a few are going to survive.
It will really change things when we see the first marijuana growing company go public and people in states that do not make it legal jumping on board to get the stock.
Might need some changes to federal legislation before the SEC approves a grow-op’s stock, but I like where this is going 🙂
The circle of life! Innovation is awesome, and it would be way less so without the risk.