With the rise of the cannabis industry in the Coachella Valley, many would-be investors are wondering whether to jump into the industry—and how/when to do so, if the answer is yes.
If you are entertaining the idea of investing in cannabis—specifically, the growth and cultivation of marijuana—there are a several important things to keep in mind.
How much do you want to invest … and how do you want to invest? The cannabis industry is growing and expanding at a rapid pace, and there are numerous levels and types of investments to consider, but the main question for investors is: Are you going to “touch the plant,” or get in as an “ancillary” business?
“Traditional investors do not want to touch the plant and are looking for ways to get into the industry without actually being in the industry,” said Michael Dickerson of EcoMaster Corporation, which is currently building the Coachillin’ Industrial Cultivation and Ancillary Canna-Business Park in Desert Hot Springs.
Dickerson said these types of investors are generally developers, landlords and builders—basically, investors in any business that helps address the challenges of the grower. He said investing in service industries that are risk-adverse makes for a good rule of thumb—because he predicts that 90 percent of growers will go belly up, while ancillary businesses will be less affected by shifts in the industry.
Why does he think growers are going to have such a tough time? State environmental approvals are difficult to get, and long-term sustainability will be challenged by water resources, water rights and environmental compliance.
Kenny Dickerson, also of EcoMaster, notes that many in the industry are unprepared for regulation; after all, they’re garage-growers who aren’t necessarily experts on business models … making ancillary businesses a wiser place to start for investors.
Greg Rutten, COO of Mochi Holdings Group in Desert Hot Springs, also said that cannabis is risky because it is an emerging industry.
“Most private lenders will only lend 50 percent of a construction (amount), so operators need to raise 50 percent as equity and will (often) give a piece of the company or stock in the company or a preferred investment rate,” Rutten said.
Rutten said potential investors should make sure any grow operator has the necessary licenses from the state and municipality where it’s located, and has landlord approval for cannabis use. As with any business, investors should also fully read the grower’s business plan and make sure the business model clearly addresses all aspects of the business. In other words: Potential investors need to do their homework to make sure they’re making a sound investment.
One final thing to keep in mind when considering investing in the industry is the instability of local and state authorities, who are scrambling to keep up with the new and growing industry. Katherine Dickerson, also of EcoMaster, echoed and emphasized Rutten’s point about making sure any marijuana business has all the necessary permits—because they’re incredibly difficult to get.
“The state is saying they are relying on (permits being issued at) the local level, but there are people at the local level making laws who are not in the industry and do not understand it,” she said. “(Investors need to) do their homework to ensure that what they are investing in is prepared to deal with the red tape as the industry morphs and becomes standardized and becomes more consistent. It is going to be a bumpy ride for the next five years.”
Robin Goins is a business consultant for DR.G Consulting and works extensively in the cannabis industry in the Coachella Valley. For more information, visit www.drrobingoins.com.