Cannabis Entrepreneurs Struggle to Secure Investments

We’re in the midst of a marijuana revolution in the United States and there’s no shortage of enterprising visionaries looking to be part of it. But in their rush to get there while it’s still hot, many of these would-be entrepreneurs hit a snag: securing financial backing for their companies. That’s because despite individual states legalizing marijuana for recreational and medicinal use, it’s still a Schedule I Controlled Dangerous Substance under federal law.

Banks have a good reason to steer clear of marijuana companies. Investing in any company comes with the risk that the company will fail and the investor will lose money. That’s inherent with any type of investing. But when the companies asking for loans are breaking federal law and risk being raided at any time, that risk becomes closer to a guarantee. The Controlled Dangerous Substances Act makes it illegal to manufacture, distribute, or dispense marijuana. To be publicly traded, companies must report all of their business records to the Securities Exchange Commission, the SEC, but that means that these companies have to admit to the federal government that they’re engaged in creating and supplying marijuana products. Just this year, five cannabis-related start ups have had their listing in the stock market temporarily suspended by the SEC.

So what can budding cannabis entrepreneurs do? Fortunately, securing funding from banks isn’t their only option. Groups like ArcView, a San Francisco-based investor network, are investing in these companies when banks won’t, allowing hopeful business owners to realize their dreams.

“I think we’re seeing a lot of people who see this as the next great American industry, and the clock is ticking,” said Troy Dayton, CEO of ArcView at the recent Cannabis Business Summit in Denver, Colorado.

ArcView’s goal is simple: to work toward an America where every adult may purchase and consume cannabis products without fear of harassment or criminal charges from law enforcement. Since 2010, ArcView’s network of more than 250 investors has spent over $10,000,000 to launch fourteen independent cannabis-related companies. It focuses on high-quality, sustainable business pitches that will promote the legitimacy of the cannabis industry.

“One of the key things to keep in mind here is that we’re not talking about a new substance, and there’s no panacea, there is no way to solve all the challenges of a particular substance,” Dayton said at the Summit, “but one thing’s for sure, a regulated environment with legal businesses is going to do a much better job of handling this product than the current criminal market.”

Along with ArcView, smaller investment groups like MJX are working to help fledgeling companies overcome the financial challenges of getting off the ground and into the marketplace. Investors like Troy Dayton are optimistic.

“The writing is on the wall,” he said. “Marijuana prohibition is very likely to end over the next five to seven years. If you’re an investor, and your game in the investment game is to get ahead of what’s going to happen, then this is often a good bet.”

Sources:

http://hereandnow.wbur.org/2014/01/03/marijuana-investors-rush

http://america.aljazeera.com/articles/2014/7/16/cannabis-boom-businesssummit.html

Photo Credit: Max London

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