Eight Reasons Why Investors Are Backing Cannabis Startups

A staff meeting at Baker, a startup that's attracted attention...and investors.
A staff meeting at Baker, a startup that's attracted attention...and investors.

5. Possibility of bringing capital and expertise from previous businesses.

Cannabis touches a range of enterprises, from marketing to retail, science, agriculture and pharmaceuticals. This gives investors who have experience in other industries an advantage, since they can share their knowledge gained in other areas and serve as both investors and advisors.

"The relationship we have with our investor is different," says Natasha Irizarry, co-founder and CEO of Stashbox. "We have to be open, vulnerable and go to them when we don't know the answer. It's not just about money; it's a mentorship."

6. It's familiar—and it's a money-maker.

"We look for the same thing in a cannabis company that we look for in any company we invest in," Schnurmacher says. "First, a strong and experienced management team that has a passion for the business along with a proprietary solution or product. Next, we want to see a solid business plan along with enough capital and strategic co-investors to execute and get to positive cash flow."

For a small amount of money, an investor can reap big rewards. Putting down $5,000 could easily get you a board seat in a startup. And considering that legal marijuana sales are expected to hit $20.6 billion by 2020, it's a lucrative opportunity many find hard to pass up.

7. But it's also new.

"Investing in cannabis is unlike anything else anyone has ever done," Bocskor says. "Investors must either find the experts to advise them, have relationships with them or become experts themselves on navigating these very dynamic markets."

Investors new to the space must learn and change their practices to the evolving industry. For example, subscription documents and private-placement memorandums must be changed, with added risk disclosures and amended vice clauses. "Cannabis is a new asset class and an emerging market all rolled into one," Schnurmacher says. "The market and pent-up/latent demand does not have to be proven and will most likely surprise on the upside as laws continue to change and acceptance improves amongst consumers and the health-care community at large."

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8. Making the world a better place.

"Cannabis allows you to do something where you can feel good about what you're doing every day," Bocskor notes. "You're reducing social injustice. You're creating availability to something that improves people's lives. You're helping to destroy the black market and creating wealth."

To put it simply, investors have the opportunity to make this industry what it should be.

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