2016’s Next Hot Market for Investors

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QUESTION – What do you get when you combine disruptive technologies with this red-hot industry?

ANSWER – An explosive multi-billion dollar market opportunity, that while still is in its infancy, is starting to show signs of entering into its hyper-growth cycle that will yield amazing business and investment opportunities.

First, let’s take a quick look at the state of the cannabis industry.

It continues to experience strong growth rates as the industry transitions from being viewed as underground and “high risk” into a regulated and legitimate mainstream industry.

As we look back at 2015, here are 5 things to know about the cannabis industry:

1. Legalization – Medical marijuana is now legal in 23 states and Washington D.C. with 5 jurisdictions having passed laws allowing for recreational use (Alaska, Colorado, Oregon, Washington and Washington D.C.).

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2. Industry growth – Targeted to be $10 Billion by the end of 2015, with $3.1 Billion (31%) generated from cannabis sales and the remaining $6.9 Billion (69%) coming from ancillary products and services, with a 30%+ annual growth rate for the years to come.

3. State tax revenue growth – Taxes generated from cannabis sales provide impactful tax revenue dollars to states. For example, in its fiscal year ending June 30, 2015, Colorado generated over $70 Million in tax revenue from medical and recreational marijuana sales. This number is almost double the $42 Million Colorado generated in tax revenue from alcohol sales in the same fiscal year.

4. Boost to the local economy – it is estimated that for every $1 spent on medical and recreational cannabis, there is an infusion of approximately $2.60 to the local economy, which is termed the “marijuana multiplier” effect.

5. Investors are coming – Venture capitalist and PayPal co-founder Peter Thiel’s investment in Privateer Holdings, a cannabis-focused investment fund, is an indicator that sophisticated investors are entering the cannabis industry which has to also spark Wall Street’s attention. Of interest to note, Peter Thiel’s fund that invested in Privateer is also the same fund that made an early investment in Facebook, and key investments in SpaceX and Palantir Technologies.

And here 5 major topics for the cannabis industry going into 2016 (and beyond):

1. On-going legalization – More states will legalize cannabis – An August 2015 USA Today article projects that 11 states are in line to potentially legalize recreational marijuana with many states having laws that could come-up for voting in 2016: Massachusetts; Nevada; California; New York; Vermont; Minnesota; Connecticut; Maryland; Rhode Island; Maine; and Delaware.

2. Impact on state tax revenue growth – States that have legalized recreational marijuana use will continue to report the strong tax revenues generated from medical and recreational marijuana sales that will put pressure to lawmakers review their positions.

3. Changing consumer sentiment – It is expected that consumer sentiment will continue to sway and grow in favor of some form of federal legalization of cannabis because of the growing body of information about the medical benefits of cannabis, and the cannabis industry’s economic impact on creating local jobs that cannot be easily transferred to foreign countries.

4. Growth of consumer market – Migration of fragmented, underground consumer market into above-ground, organized market that will be a major catalyst start to attract new cannabis users.

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5. Celebrity brands are coming – As the consumer market continues to grow, expect a flood of new lifestyle-branded, celebrity-endorsed cannabis products, e.g. Willie Nelson’s new venture.

Entrepreneurs have taken notice and are creating business ventures with a specific spin on the cannabis lifestyle.

Companies are launching consumer-centric services that include: e-commerce, social networking, directory listings, advertising, and mobile delivery.

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E-commerce – To say online retail is going thru its next growth cycle is an understatement. A Forbes article recently cited that more consumers shopped online retailers than in brick and mortar stores on Black Friday 2015. This marks a massive crossing point for consumer buying behavior.

E-commerce is an appealing business model for the cannabis industry because consumers are provided with a discreet and private shopping experience. And with 69% of the industry’s projected $10 Billion revenues coming from non-cannabis related products and services, companies focusing on e-commerce have a tremendous market opportunity.

Publicly traded Ecco Science Solutions, Inc. (Stock Quote: ESSI $ – website) is leveraging its e-commerce platform and is following Amazon.com’s playbook to build the infrastructure for an e-commerce marketplace with the goal to connect consumers, dispensaries, smoke shops, and manufacturers and easily facilitates e-commerce transactions for all-things cannabis. Read more about Ecco’s plan plan to become the Amazon e-tailer for the cannabis industry.

Social networks – It will be natural for the growing consumer market to want to connect, share and discuss their cannabis and lifestyle interests.

Mainstream social networks like Facebook will not be attractive options because of the needs for privacy, anonymity, and general avoidance of any potential backlash from anti-cannabis employers, co-workers, family and friends.

Privately-held Duby.co and publicly-traded Mass Roots provide Foursquare and Instagram-like experiences with a focus on user-generated photos that promote and share their cannabis lifestyle and interests with other community members.

Directory listings – New and existing consumers have a common need – they want to know where and how they can purchase their cannabis.

Privately held Weedmaps and Leafly have launched businesses that provide business listings of local dispensaries and delivery services. They have a Yelp-like feel that provides business information on local dispensaries and local delivery services with consumer reviews and ratings.

Mobile delivery – Many cannabis consumers still have a need for discreet purchasing. Although many consumers enjoy the experience of going to a dispensary, it’s not always convenient for them to do so.

Privately held Eaze and Speedweed have launched businesses that are vying for branded-delivery of cannabis to consumers. Although their businesses aren’t exactly like Uber, they often are being compared to Uber.

Advertising – Most, if not all, of the businesses models referenced above have some from of advertising to the business model. From sponsored ads to daily deals, consumers are being marketed to.

However, we have not seen an ad network specifically targeting and servicing cannabis web properties and apps, but would venture to guess that there will be a few in the not so distant future.

These are some exciting times we are living in.

We believe that we will look back on 2015 as a pivotal time as it was the year where technology got together with cannabis to form the next great industry.