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Private Equity Firms Help Fund the Growing Cannabis Industry

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It’s no secret to investors that the cannabis sector is the fastest growing and arguably, the most lucrative. More and more cannabis businesses are also going public. In a response to the cold shoulder that many financial institutions give industry entrepreneurs, dozens of cannabis-finance companies have formed in order to capitalize on the green rush.

While most of the new private funds and equity firms have been founded in the past few years, Privateer Holdings was started in 2011. According to their website, Privateer Holdings pride themselves as being the first of its kind in the U.S. to focus solely on cannabis-related business endeavors. Most of these private-equity firms invest in companies operating in the legal-cannabis industry, as well as providing capital for new startups to generate returns down the road. These forward-thinking firms are an example of the kind of investment professionals that we need to continue to see more of to accommodate the financial needs of a growing industry.

Financial experts predict that retail sales of legal cannabis will reach up to $4.3 billion in 2016. Furthermore, sales will likely hit an astronomical $11 billion by 2020 if we stay on this current course. While nationwide medical cannabis sales still make up around three-quarters of the entire industry, experts are predicting that will change in the coming years, with recreational sales representing an estimated 55% of the industry by 2020.

Even though states like Colorado and Washington have legal marketplaces for the sale and consumption of recreational marijuana, the plant still remains a Schedule I drug at the federal level. Because of this, most banks refuse to work with cannabis companies, because the feds have them fearful of legal repercussions.

Firms that invest in the cannabis space are very careful about where they invest, dealing only in states that have specific rules that allow for the commercialization of legal cannabis. Companies registered with the Securities and Exchange Commission face ongoing federal pressure, not to mention the possibility of civil and criminal penalties. This is precisely the kind of confusing quagmire that prohibition creates.

Necessity is the grandfather of innovation. Fortunately for investors interested in the cannabis industry, many companies like Cannakorp develop products intended for cannabis consumption without actually touching selling the plant themselves. Putting their money into these types of companies exposes investors to fewer legal risks than those who deal with the growing and sale of cannabis. As we continue to evolve as an industry, we should hopefully start to see these issues in the rearview mirror.

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