The best businesses to start in states that just legalized cannabis may be ones that don't touch the plant
- On Election Day 2020, New Jersey, South Dakota, Montana, and Arizona voted to legalize recreational marijuana; Mississippi legalized medical marijuana.
- Each state represents a massive opportunity for local entrepreneurs — both those who want to directly handle marijuana and professionals in supporting the industry.
- Marijuana's semi-legal status makes it hard to operate across state lines, opening up room for a local cottage industry composed of licensed professionals like doctors, bankers, and lawyers.
- There is also room in marketing, education, and the manufacturing of paraphernalia.
- The smaller markets may actually offer better opportunities since he biggest industry players tend to jump on opportunities like New Jersey and crowd out local competitors.
- Visit Business Insider's homepage for more stories.
Cannabis was one of the big winners of the 2020 election. New Jersey, South Dakota, Montana, and Arizona voted to legalize recreational marijuana, and Mississippi legalized medical marijuana.
Each passed measure is an opportunity for massive business. Marijuana Business Daily has projected sales in New Jersey alone could approach $1 billion annually by 2024.
Each time cannabis is legalized in a state, it creates a cottage industry for local entrepreneurs — not just local growers and sellers, but a wide variety of businesspeople.
Opportunities 'from farm to flame' depend on how many licenses local governments hand out.
The scale of the opportunities for locals to make money directly handling marijuana will depend greatly on how many licenses local governments in these states hand out. How many will be available and who will get them is something that will take time for local regulators to sort out. Typical businesses in the cannabis supply chain include cultivating, extracting, manufacturing, testing, distributing, delivering, or retailing.
"Those are the larger buckets of activities in the supply chain that effectively goes from farm to flame," cannabis investing firm Mazakali CEO Sumit Mehta told Business Insider.
Some of the most promising businesses may be those that don't directly handle the plant.
There is an entire second industry of businesses that support or compliment operations that directly handle marijuana, ranging from security and marketing to medical professionals. Mehta estimates that for every dollar spent on the cannabis supply chain, another two go to industries that support them.
"There are also roughly twice as many businesses supporting the cannabis supply chain as there are in the cannabis supply chain," Mehta said.
Beyond licensed professionals, the complicated nature of local regulations and use laws open up opportunities for local marketers seeking to become the default local sources of reliable information.
"Because cannabis has been illicit for so long, there's a huge gap between what people understand and know about it, and what they need to know," Massachusetts-based cannabis appliance company Ardent CEO Shanel Lindsay told Business Insider.
Then there's hardware. Head shops offering classic paraphernalia like bongs and pipes benefit, but legalization also opens up pathways for more sophisticated user items like Ardent's FX, which processes and fuses cannabinoid materials into foods like an Easy-Bake Oven.
"Those kinds of items, smoking accessories, things that help people, the tools to use cannabis, that is a huge part of the industry because it is a product that needs to be consumed," Lindsay said.
Cannabis' federally illegal status means local businesses can fill the gaps.
The highly balkanized nature of the marijuana industry means that many of those opportunities may go to locals. Even though marijuana is lucrative, its federally illegal status has created what Mehta calls "a moat around the cannabis castle," meaning large corporations are loathe to invest in serving the industry. This provides an opportunity for local players who are willing to get involved.
"The absence of getting meaningful support from corporate America," Mehta said. "There's a void that's created."
That void tends to be filled in state markets by an army of accountants, lawyers, and bankers.
"Folks are reticent to join the industry because they risk losing their licenses and their ability to generate an income," Mehta said, "and that leads to a large cottage industry."
Less populous states could offer less competition and more possibility.
When it comes to directly handling marijuana, some of the best opportunities may be in states with smaller populations or no previous history of legalizing medical marijuana use.
Jeffrey M. Zucker, president of cannabis consulting firm Green Lion Partners, told Business Insider the big players of the recreational marijuana industry prefer to jump into larger markets that have already legalized medical marijuana because they tend to have a regulatory structure for the industry already in place.
"They will certainly have plenty of opportunities in New Jersey and Arizona," Zucker said, "but there might be bigger opportunities in smaller states like South Dakota, where the big guys may not be in as much of a rush to get there."
Source: Read Full Article