Here’s Who Is Not Afraid to Invest in Cannabis
In an industry projected to be worth upwards of $40 billion in the next three years, one would think that banks would want a piece of this pie. But due to federal law that is not the case. Procuring funding in the cannabis industry is difficult, almost impossible.
PotNetwork reported earlier on the impossible relationship between big banks and cannabis. The federal regulations on marijuana in North America prevent banks from investing in cannabis the way they can in other commercial industries.
But even without the support of big banks, many pot stocks are still finding success. And in the United States, where pot is still illegal, investment firms are getting creative about how and where their funding goes.
Here is a quick snapshot of who is not afraid to invest in cannabis.
Archytas Ventures is one investment firm putting cannabis first. Taking their name from the Greek inventor of mathematical mechanics, Archytas invests in the mechanics of cannabis. The L.A.-based firm specializes in extraction equipment. They lease state-of-the-art extractors to cannabis cultivators and oil processors looking for affordable equipment.
“Equipment is the guts of the cannabis growing and processing business,” said Tim Rotolo, one of the founders of Archytas, in a recent interview with Forbes. “We can do whatever they want from setting the machine up and leaving, to servicing it, monitoring it over the internet, or staying onsite to run the machine and becoming the extraction team.”
Choosing to invest in equipment is how Archytas circumvents the constraints of legal funding, especially in the United States. Equipment and machinery are less risky than a land or flower investment, and the extractors can move easily across state lines without legal repercussion.
But equipment is not the only item in Archytas’ portfolio. Last October, Archytas invested an undisclosed amount of money in Halo Labs, a top cannabis oil processor in Oregon. The lab is on track to produce over one million grams of oil. Archytas’ investment will fund Halo’s expansion into Nevada and California.
Merida Capital Partners
On the east coast, New York-based equity fund Merida Capital Partners just surpassed $50 million in total assets. The firm provides funding for nine different cannabis companies, including Kush Bottles (OTC:KSHB) and Steep Hill Labs.
With their diverse portfolio, Merida Capital is minimizing the risks that typically plague this industry. Out of the nine companies, only three are hands-on with marijuana. The rest are packaging and equipment providers, data analyzers, and laboratories.
“As cannabis evolves as an agricultural product, a natural plant-based medicine, a constituent in medical-grade formulations, and an adult-use consumer product, Merida will capitalize on its data, informational edge, and deep relationships in the cannabis space to make high-impact investments that deliver value to investors.” Mitch Baruchowitz, a managing partner at Merida, said in a statement on May 16.
Merida Capital reaches across the United States from coast to coast, with funding helping cannabis companies in Colorado, California, Rhode Island, Michigan, Washington, and Nevada.
Bank of Montreal
Even with recreational legalization looming on the horizon, Canadian pot stocks still have a hard time procuring funding. Big banks in Canada are just as apprehensive to invest in pot as American banks. But the Bank of Montreal is working through that anxiety.
Bank of Montreal (BOM), as the fourth-largest bank in Canada, is one of Canada’s Big Five. Earlier this year, BOM announced their foray into cannabis with the underwriting of a $175 million stock sale for Canopy Growth Corp. (TSX:WEED). But as the recreational industry starts to take off in Canada, the bank speculates that these cannabis businesses will need a suite of more sophisticated banking tools.
Big banks can help pot stocks with debt financing and mortgages, as well as loans. Moving into the industry as they did puts BOM in a great position to start offering those tools when the time comes.
As of right now, BOM does not anticipate a surge in the cannabis industry. They project that Canadian recreational weed will only outplay the black market by 40 percent in the first year. Their reports see this growing to 60 percent by next year, but Bank of Montreal doubts the power of big pot stocks like Aphria Inc. (TSX.APH) and Aurora Cannabis (TSX:ACB) (OTCQB:ACBFF) According to their report, these pot stocks will only contribute a “modest amount” in the first few years of country-wide legalization.
Could it be these kinds of numbers that are deterring bigger banks from investing in cannabis? The answer may come when marijuana is officially legalized in Canada this summer. In the meantime, keep an eye on the smaller firms who are responsible for giving this industry the finances it needs to get off the ground.