Over the past several years, the cannabis industry has evolved into a cultural, economic, and political revolution. As part of this rapid change, the legal cannabis industry has engendered one of the fastest growing sectors in the world. The cannabis industry shows growth characteristics similar to the internet industry in the 1990s, but demand for the internet had to be created as it was rolled out. The billions of dollars of existing demand for cannabis can be captured as states legalize the sale of cannabis products. Currently, legal cannabis sales are around $5 to $9 billion per year (estimates vary widely as California represents approximately 50% of the overall industry but lacks a comprehensive seed-to-sale tracking system to accurately measure sales of cannabis in the state), representing only a fraction of the overall demand in the country and leaving much room for growth.
Growth over the next five to ten years will depend largely on the timing of new states creating legal and regulated cannabis markets. The more states that enact medical or recreational markets and the faster these regulations lead to active markets (i.e. the shorter the time between the law being enacted and sales beginning), the faster the industry will grow. Estimates for the size of the cannabis industry in five years’ time (end of 2020) are between $15 and $25 billion, with most estimates falling near $20 billion. Estimates for the long-term size of the cannabis industry ten years from now, assuming most if not all states create regulated cannabis markets and the federal government changes its stance to allow for the creation of a national cannabis industry with interstate commerce, range from $15 billion to over $50 billion, with consensus falling around $35 billion. These figures only cover the sales of cannabis and cannabis-derived products; when including ancillary products and services provided to and supporting the cannabis industry, estimates for the total value added to the economy range from about $75 billion to over $100 billion.
Some of the biggest challenges we continually see in this space have to do with the people. While the cannabis industry is coming out of the black market and “into the light”, there remain several characteristics from the black market. Individuals previously engaged in illegal cannabis activities, as well as opportunists seeking to make a quick buck through stock scams or other less-than-legal initiatives, have made their way into this space. Because of this, finding and vetting management remains one of the most important facets in due diligence. However, while there have been some questionable individuals and groups in the industry, the industry is steadily becoming more professional as more sophisticated investors and operators enter the industry to capitalize on the high prospects for growth and profits.
We at Viridian Capital Advisors put forth extra effort seeking out the highest quality management teams in various sectors of the cannabis industry. Specifically, we search for personnel who bring to the cannabis space expertise they acquired and developed in industries tangential to this industry that can then be applied to cannabis operations. We have identified several executives in the cannabis space that exemplify the caliber of individual for which we are looking:
• Staffan Hillberg, the CEO of Heliospectra AB, an intelligent LED lighting manufacturer from Sweden, is an experienced venture capital investor and former executive of Apple, bringing to Heliospectra his experience as a technology entrepreneur and investor;
• Don Robinson, the CEO of Golden Leaf Holdings, one of the leading infused products manufacturers in Oregon, brings to Golden Leaf his experience in commercial food production that he acquired as CEO of Mars Canada;
• Derek and Terri Riedle, the founders of Civilized Worldwide, an up and coming digital media and publishing company targeting affluent gentlemen who enjoy cannabis culture, previously developed and sold successful media properties and are bringing that experience to their new venture in the cannabis space. Furthermore, alongside Terri and Derek is Mitchell Fox, the former publishing director of Conde Nast and former editor of Vanity Fair, who brings his own breadth of media expertise to the Civilized team.
These are but a few examples of the experienced operators that have entered the cannabis space from outside, albeit related, industries and who bring to their firms a level of professionalism and capability that is, today, uncommon in this sector.