Trump Casts Cloud Over Cannabis, but Money Keeps Pouring In
By Jennifer Kaplan / Bloomberg
The Trump administration’s adversarial stance toward marijuana has brought jitters to the burgeoning cannabis industry, but money continues to pour in.
Pot-related companies raised more than $734 million between Jan. 1 and April 21, an almost sevenfold increase from $108 million in the same period last year, according to a report from New Frontier Data and Viridian Capital Advisors. That brings the total amount raised to $1.9 billion since the start of 2016.
The investment surge reflects optimism that President Donald Trump and Attorney General Jeff Sessions won’t crack down on the industry, even as those concerns weigh on stock prices this year. Since hitting a peak in February, the Bloomberg Intelligence Global Cannabis Index has dropped 36 percent.
For cannabis financiers, the industry’s growth potential outshines the political risk. Eight states voted to legalize cannabis in some form on Nov. 9, including the nation’s largest. Legal cannabis demand in California is set to grow by 50 percent in 2018, when recreational use is scheduled to come online, according to the report. The report’s authors forecast that national demand for legalized marijuana will almost quadruple by 2025.
“With each new state that legalizes, that need for capital is going to be there,” said John Kagia, New Frontier’s executive vice president of industry analytics and author of the report. “It will continue to represent a substantial investment opportunity for the foreseeable future.”
As a result of competition for funding, seed capital is being raised in greater initial amounts and its cost is getting more expensive, New Frontier Chief Executive Officer Giadha Aguirre De Carcer said.
The boom has taken place amid an unclear policy outlook under Trump. Press Secretary Sean Spicer said in February that he expects the Department of Justice to increase enforcement of federal laws prohibiting recreational pot use, even in states where it’s allowed. While Spicer defended medical marijuana, Sessions indicated he dislikes anything to do with the plant.
“Our nation needs to say once again that using drugs is bad; it will destroy your life,” Sessions said in a speech to law-enforcement officials in March. “I reject the idea that we’re going to be better placed if we have more marijuana. It’s not a healthy substance, particularly for young people.”
Despite his stance, Sessions hasn’t done anything to really pump the brakes on the industry. Congress passed an amendment to the federal spending bill that prevents his department from cracking down on medical-marijuana programs that have been legalized by states. Still, Trump signaled last month that he may not consider that ban binding.
The uncertainty has made some investors more nervous about getting into the industry.
“There’s a lot of fear,” said Rob Hunt, a founding partner of Tuatara Capital, which invests in cannabis companies and has more than $100 million under management. The silver lining, however, is that “it’s not very likely we’re ever getting someone further to the right on this issue than Sessions is.”
Scott Greiper, president and founder of Viridian, notes in the report that “a day doesn’t go by where an investor hasn’t asked us about the potential impact of Mr. Spicer’s comments in particular, and the Trump administration in general.”
Neither the political threats nor ongoing banking and tax difficulties will ultimately derail the industry, Viridian and New Frontier predict. Legal sales of cannabis products are expected to reach $24.1 billion in 2025, up from $6.6 billion in 2016. Investment will keep gaining too, particularly because interstate commerce is prohibited. That means every state that legalizes weed must create its own infrastructure.
The public’s support for legalization rose to 60 percent in 2016, more than doubling from 20 years ago, New Frontier reports, citing Gallup polling data.
“What we’ve also seen in the past 18 months or so is an increased number of more sophisticated companies entering the industry,” De Carcer said. And they’ve come with “more mature and experienced management teams,” she said.Wait, before you go…
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