The cannabis industry has been rapidly growing over the past decade, with recent years witnessing the growth that rarely anyone could have predicted.
Thanks to the 2018 Farm Bill, which legalized the regulated production of hemp, CBD-based products, and other products derived from the cannabis plant.
New cannabis startups keep popping up, each offering a unique set of cannabis products. You can choose CBD oil, CBD gummies, cannabis-infused beverages, medicinal cannabis, and even cannabis-infused ice cream. The possibilities seem endless.
The opportunities for supporting the green rush as an investor seem to be numerous as well. More investors are backing cannabis startups these days, and here are the top reasons why.
The Cannabis Industry Keeps Lighting Up
According to a Crunchbase report on cannabis startup investments, funding for cannabis startups was nearly four times bigger in 2018 than in 2017.
In 2017, cannabis startups received $339.5 million from investors. In 2018, investors provided them with more than $1.3 billion in funding.
When 2019 started, its first quarter saw nearly double cannabis startup investments compared to the first quarter of 2018.
The industry keeps lighting up, together with a growing demand for cannabis. That’s why investors are backing new cannabis companies. By providing the necessary funding, investors help budding entrepreneurs meet the rising demand and turn their ideas into a reality.
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Diversifying Their Portfolio
Having a diversified portfolio is one of the primary goals of every investor. The more different investments they have in their portfolio, the better their risk profile will be.
Of course, the key lies in investing in successful startups. With more successes in various industries, their investment profile becomes stronger, and their returns get higher.
But as much as the cannabis space keeps growing, cannabis startup investments are still considered high-risk, which leads us to the next point.
Improving Their High-Risk Management Practices
Why would anyone venture into a high-risk business investment? There’s a lot of competition on the market, not to mention the legal considerations, taxation, inflated share prices, and many other issues.
Investors are aware of those issues, but that’s precisely why they want to invest. They want to help reduce the risks by executing well-established business plans and proving that the market can be regulated.
It has largely become regulated, but there’s still room for improvement and more regulations. Investing in cannabis startups gives investors a chance to take their high-risk management practices to the next level.
Potential for High Growth and ROI
According to Green Growth CPAs, investing in a cannabis business can bring an ROI of at least 30%. Many investors consider a return of 10% or more as a good ROI for long-term investments, so 30% seems quite a favorable opportunity.
If a company plays its cards right and reaches that ROI, or higher, it can unlock numerous growth opportunities.
Becoming Advisors to Startups
Many investors want to do more for a startup than just provide the funding. They want to be advisors who can help a particular company grow and seize many lucrative opportunities.
Those with experience in different industries can bring a lot of business knowledge to the table. So, they don’t need to be familiar with the cannabis industry at all. With the right knowledge and expertise from previous investments, they can help cannabis startups blaze the trail.
Personal Experience with Cannabis
Another reason why investors are eyeing new cannabis companies is a personal experience with cannabis. Cannabis can provide many health benefits, as numerous scientific studies have shown.
For instance, it can help reduce inflammation in the body and relieve chronic pain. It can help treat sleep disorders and various neurological and mental health conditions, such as anxiety, PTSD, epilepsy, and multiple sclerosis.
It can also help inhibit cancer cells’ growth, improve appetite, and reduce nausea and fatigue due to chemotherapy treatments.
Many high-net-worth individuals and family investment groups invest in cannabis startups because they’ve had some personal experience with those cannabis effects.
They want to make an impact and help people get medicinal cannabis for treating various health conditions. Their passion makes them more invested in a company, making quicker decisions to seize more growth opportunities.
Conclusion
Cannabis startups are gaining traction these days as more states and countries worldwide keep legalizing the cultivation, possession, and use of cannabis products. Many have legalized them only for medicinal purposes, but that still leaves many doors open.
Are you looking to invest in a cannabis startup? Perhaps you’re looking for the right investor? Whichever the case, there are a plethora of profitable opportunities out there, and many more are bound to pop up in the coming years.
