Every entrepreneur’s dream is discovering a largely untapped market with a well-established customer base where they can start small and build a huge business. If that describes your dream, consider starting a legal cannabis business.
This sector is currently the fastest growing industry in the United States, and one of the fastest growing in modern times, rivaled only by the early tech boom. A recent report by the Huffington Post states that marijuana is set to grow even larger than the current organic food industry.
And it’s easy to see why. Medical marijuana is now legal in 29 states, and recreational marijuana is legal in 9. Another seven states are most likely to consider marijuana legalization in the remaining 2018 year, with more possibly joining as restrictions on the drug relax. Some states are even taking steps to not only make marijuana legal but also more accessible.
With over 65 percent of Americans supporting the full legalization of marijuana, it’s just a matter of time before the federal government recognizes marijuana’s benefits. That alone would amount to a significant symbolic shift – and entrepreneurs that onboard early will be ready to take advantage of the exploding industry. Those in the industry would like everyone else to think that they have missed the boat but that’s simply not the case. Think of it much like prohibition. Marijuana, like alcohol, has been around since forever, but it wasn’t until it was legalized and commoditized that people started to make large sums of money from the good. That is where cannabis is now!
The American economy doesn’t support a new industry so often – and legal cannabis may well be among the very few market booms that hit the $5 billion in annual spending target while posting 25% annual growth within 5 years. Cable television came close, posting a 19% boom annually in the late 90s.
This incredible pace of growth promises a potential cash-cow for small business startups – especially in states where medical marijuana has long been legal. In fact, new reports reveal how most young cannabis businesses are quickly becoming profitable.
$24.5 Billion in Forecast Sales
The market for legal marijuana is booming in a big way. Legal cannabis sales are predicted to hit $10 billion in North America in 2018, according to a report by analysts from ArcView Market Research. This represents a record 15% increase in one single calendar year, crushing previous projections about how fast cannabis could grow even with federal prohibition. The report further anticipates that legal marijuana sales will reach $24.5 billion – a 26% yearly growth rate by 2020. As existing markets mature and more states legalize the use of cannabis for legal and recreational use the market becomes wide open.
Super Cheap Startups
The competitive landscape of cannabis is flooded with new startups. But don’t be alarmed by this statistic. More than 30% are 1 year old or less, ArcView found. Out of the remaining, about 25% are 3 years old, 35% are 2 years old, and the rest are 5 years old and below.
Of particular interest is the fact that most of these businesses report that their startup costs were so small – and this is where it starts to get interesting. A third of these start-ups say they invested less than $50,000. Some 15% say they put in between $60,000 to $100,000, and another 25% report spending between $200,000 to $500,000. Only a very small percentage spent over $ 1 million when starting out.
Similarly, 50% of small marijuana cultivators, commonly known as caregivers, say they invested less than $10,000. The other half reported they spent up to $50,000 in their startups. With start-up costs this low, the barrier to entry is affordable for most entrepreneurs.
Nearly 90% of marijuana dispensaries, infused product companies and wholesale growers report that they are already breaking even or are profitable, according to the 2016 Marijuana Factbook.
The infused products and cultivation sectors are particularly lucrative, with 30% of wholesale growers and 27% of infused product companies reporting that they are seeing significant profits.
Cultivators become profitable relatively quickly, usually after the first harvest. Infused products companies also become profitable very fast. They lead in business growth, with 90% of infused product startups reporting that they are breaking even in their first year.
The most profitable startups according to Factbook are often infused companies and cultivators, who find it easy to make back their investment capital within 12 months.
Investors are joining in
A few years ago, many investors wouldn’t dare touch this sector. But in the last three years, angel investors and venture capitalists are jumping in and funding many cannabis companies and ancillary cannabis supply businesses.
Investors have shown particular interest in seven cannabis-related businesses:
-Infused products/edibles companies
-Legal recreational retailers
-Legal pot products
-Service firms (software, security and set up consulting)
Large Customer Base
One of the most significant reasons why legal cannabis is a laudable business is that there is a huge ready market. Americans are spending an average $1800 every year on cannabis products: even more than they spend on their pets ($1500 per year.) This alone supports the marketplace growth and lends to the thinking that cannabis is unlikely to shrink or disappear anytime soon. For many entrepreneurs in the industry, legal cannabis continues to be a quick cash-cow they can invest in.
As is obvious, the U.S. cannabis market is big and filled with opportunities. If you’re an entrepreneur or even a future entrepreneur, don’t let the biggest business opportunity in your life time pass you by without at least taking a look at how you might fit into the growth of the market.