“Reggae classics”Smoke two joints” advises us to shine in the morning, afternoon and evening to make us feel good. Investors starting a cannabis business could add one more reason: It’s higher than pondering about how your portfolio will perform.
While many sectors have seen less investment recently, declines in the cannabis trade began earlier and have been particularly steep. Funding for this space peaked about five years ago, per Crunch Base data. Since then it has been up and down, though mostly down.
For perspective, we calculated annual investments in North American cannabis startups over the last nine calendar years. We began in 2016 when Californians voted to legalize recreational marijuana, joining other Western states in what many believed would usher in a boom in venture-funded space entrepreneurship.
As you may see from the chart, the narrative didn’t unfold as expected. The most financed firms boom period – including famous names reminiscent of Dutchman, With Ale, Pax Laboratories AND eaze — most have not obtained latest financing for years.
Meanwhile, in public markets, cannabis is a notoriously underperforming sector. Marijuana-focused ETFs introduced to the market during the boom times, they are now trading mostly at a fraction of their previous highs. Industry leaders prefer it Brand Tilrayknown for medical marijuana and Canopy growthwhich offers branded cannabis products, are each unprofitable and trading well below their peaks.
There is no shortage of products
Of course, consumers have not given up on weed. With the development of edibles, vaping, and other consumption methods, there appears to be an ever-increasing supply of alternatives to the two classic joints.
In addition to products containing THC, the compound that gives marijuana’s famous high, entrepreneurs are gaining markets for other hemp-based products. This includes startups working with CBD, a non-addictive and harmless cannabis compound that many associate with improved well-being.
However, the investments didn’t go as expected. Dozens of firms related to CBD, which is actually legal to sell in the U.S., have raised multimillion-dollar rounds over the past five years. However, as with the broader cannabis space, funding has slowed and most have not raised latest funding in the past few years.
Fragmented market
Cannabis investors see an opportunity for faster growth if the U.S. government decides to legalize marijuana. For now, states proceed to loosen restrictions. From about a 12 months ago 38 states allowed the medical use of cannabis products, while one other 24 countries had laws allowing some recreational use.
There is definitely a sense that the political winds are still blowing in a direction favoring legalization or at least decriminalization. Last week, it was none apart from the vice chairman Kamala Harris he tweeted that: “Nobody should go to jail for smoking weed.” Several bills in Congress they aim to legalize or loosen restrictions.
But just because something is legal doesn’t suggest it’ll produce enviable returns for enterprise capital. In the case of cannabis, investments that once looked able to lighting up the market have as a substitute largely burned out supporters.