Why Cannabis Is 2015’s Best Startup Space

32993072_sEvery entrepreneur and investor wants to discover an untapped market where building a huge business is possible with a low investment. This year, the best space to do that is the legal marijuana industry. Why? Because the industry is growing so fast and its young status can give businesses an early-mover advantage.

That’s not just what observers are saying – that’s backed by facts.

The Marijuana Business Factbook 2014 recently revealed new figures that show how, despite how young many cannabusinesses are, they’re quickly becoming profitable.

Forecast Growth: $7 Billion

Cannabusiness Media, publisher of the Factbook, estimates that $1.6-1.9 billion worth medical marijuana and $600-700 million worth of recreational pot were legally sold in the US last year.

That’s already a sizeable market, but the latest Factbook projects more: legal cannabis will rake in revenues of around $8 billion by 2018. That means the near-term marketplace has more than $7 billion worth of upside potential.

Though the numbers of other projections aren’t consistent, many of them agree that the legal cannabis industry will grow massively in the next few years.

Affordable Startups Abound

The marijuana industry already shows some competitiveness even though a lot of the companies in it are young. The Factbook found from its survey that less than half of cannabis companies have even reached three years old. Some 30% are just a year old or younger, 21% were launched in 2013, and 4% started in 2012.

Regardless of age, most marijuana businesses report their startup costs to be modest. One-third of wholesalers put in $50,000, 14% spent around $50,000-$100,000, and 24% $100,000-$500,000. The remaining 29% put in $500,000 or more, with only 10% having spent over $1 million.

In addition, those with small home-grow operations – or caregivers, as they are known in the industry – had even smaller expenses. Almost half of them invested less than $10,000 for their business and the other half spent only $10,000-$50,000.

Already Profitable

Though the industry is still nascent, a notable number of companies are already profitable. The Factbook’s survey found over half of the companies reporting that they are already in the black. Specifically, 38% are “modestly profitable” and 16% are “very profitable”. Some 28% are at a breakeven, and 15% report losing a bit of money. Only 3% said they see “significant losses”.

Profitability in the industry is also apparently quickly attainable. Majority of the businesses – 62% – said they were already profitable within 12 months of operation. Only 6% took over three years.

High Investor Interest

If most investors wouldn’t touch the cannabis industry a few years ago, the tides are beginning to turn. Angel investors and venture capitalists have jumped in and started to back legal marijuana firms. The most prominent of these is Peter Thiel’s high-profile Founders Fund investment in cannabis firm Privateer Holdings at the start of 2015.

Thiel is far from being the only one. A number of marijuana startups have already received over $1 million in funding, and various marijuana-related businesses are flourishing as well.

The Marijuana Factbook identified these top seven areas of investment in the industry:

  • Cultivation or operation
  • Medical cannabis dispensary
  • Legal recreational pot retailers
  • Edibles or infused-product makers
  • Service firms, especially security, setup, and software
  • Ancillary products
  • Legal hemp products

Based on these, it is clear that entrepreneurs and investors don’t need to be marijuana-growing experts to be successful in the industry. There is plenty of room for innovators in retailing, software, foods, and more.

High-Value Consumers

A major factor that makes legal marijuana a desirable industry is that its customers spend big. It turns out that an average cannabis consumer spends $1,869 a year for the herb. To put that into perspective, an average American spends only $1,500 annually on pets, and that’s considering that pets are a very popular part of American culture.

 

Of course, the legal marijuana industry still has risks. That is always the case in any marketplace. But as these facts indicate, legal cannabis might just be the best business opportunity since the internet boom. The US economy does not generate brand-new industries very often, much less one that shows potential, so the marijuana industry is a good space for those seeking a business headstart.

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