November 10, 2016

Cannabis-based investment firms like Seattle-based Privateer, which raised $40 million in convertible bonds just days before the election, have been working to build up war chests prior to a vote that could legalize marijuana in nearly an additional 20 percent of U.S. states. However, investors have been reticent to commit capital without the results of the vote.

Well, the vote is in, and it could have far reaching effects for the legal marijuana investment space. Voters in Massachusetts, California, and Nevada passed a measure legalizing recreational marijuana, while Florida, North Dakota, and Arkansas voted to legalize medical marijuana. While as of Wednesday morning, the vote was still too close to call in Maine.

The vote is the most significant development for the industry since 2012 when Colorado and Washington voted to legalize the recreational use of marijuana. Its passing in California not only legalizes the recreational use of marijuana in the most populous state in the U.S. accounting for 12 percent of the country’s population, but creates a legalized “corridor” along the entire west coast of the country. Meanwhile, the Massachusetts vote gives legal marijuana its first victory in the crowded Northeast region.

“This is obviously a positive development, particularly with the size of California,” Morgan Fox, spokesman for the Marijuana Policy Project, told Patch. “The money that was going into the hands of criminals is going to be going into legitimate businesses.”

Investors have been waiting for the results of this vote, particularly in California. The weight that the state’s economy brings to the legalized industry is believed to be able to drive the end of federal prohibition. Indeed, The Washington Post reports that President Obama stated in a recent interview that a passage of Proposition 64 in California has the potential to reverse the federal government’s prohibition of the use of marijuana.

“This is a huge year for the industry,” Jessica Rabe, an analyst at Convergex in New York told CNBC. “The fall election will be very important in terms of the trajectory of where the industry goes and how quickly legalization happens in this country.”

Huge Potential

During its first full year of legal medical and recreational marijuana sales, the state of Colorado saw sales of more than $700 million in 2014.

Tagged as a growth sector, the marijuana industry as a whole has been growing at almost 34 percent per year for the past five years and is expected by IBISWorld to reach a value of $13.4 billion by 2020.

There are now 5,000 retail outlets selling legal medical or recreational marijuana across the U.S., generating $3.6 billion in revenue this year alone. This number of stores is expected to climb by 20 percent through 2020, when the number of U.S. stores is projected to reach 12,000.

With numbers such as these, the industry is gaining traction with serious investors including Microsoft, Scotts Miracle-Gro, and Australian gold explorer, International Goldfields Ltd. The ArcView Investor Network has also stated that it has worked to connect more than $40 million of investments across 53 cannabis-focused startups.

This momentum, now backed by further legalization has led to dynamic activity by Investors that have been preparing for potential legalization. Firms including MedMen, Seventh Point, and Salveo Capital have been actively raising cannabis-focused investment funds. In addition, only weeks ago, Innovative Industrial Properties (IIP), a newly formed, San Diego-based real estate investment trust (REIT) focused on building a portfolio of medical marijuana grow facilities, has filed with the Securities and Exchange Commission (SEC) for a $175 million initial public offering (IPO).