Ten years ago, the financial crisis of 2008 and 2009 was very bleak. Many people lost their jobs, their life savings or both. The stock market veered away from investment fundamentals into risky trading algorithms, and many Americans paid the price.
However, there was a silver lining for one industry—the fledgling medical cannabis dispensaries. Some investors started looking to invest, and many thought there was something to “this cannabis thing.”
A closer look revealed how much of a cash cow the medical cannabis industry was at that time in California. One metric used by investors is sales per square foot of retail space. As it turned out, dispensaries had terrific performance in this area. In fact, only Apple Inc. was bringing in more sales per square foot. Dispensaries were performing at an incredible 12 times the national average ($325 per square foot at the time).
Morgan Stanley SVP Derek Peterson recalls it very well. He says dispensaries the size of your average Starbucks were bringing in $15 million a year.
Peterson took the plunge. He quit Morgan Stanley and became president and CEO at Terra Tech Corp. (OTCQX:TRTC) (OTCQX:TRTCD), a medical marijuana cultivator. The company just reported record 2017 earnings and today is a $247 million company, one of the few publicly traded pot stocks.
Peterson was not alone in making the jump from Wall Street into the relative unknown, but those that took the risk are getting huge payoffs ten years later.
Executives like Peterson were joined by others from powerhouse firms like Goldman Sachs and Prudential Financial; they all say they probably would have never left their traditional finance roles except for 2008 financial crisis.
Like Terra Tech, U.S. marijuana companies had 2017 revenue of $6 billion—an incredible 500 percent increase in just five short years. Now, a quarter million employees work in the sector.
Those jobs—and the revenues will double or even triple over the next four years.
Peterson and other execs are still in the minority, as many financial professionals still worry about federal law, which still classifies cannabis as a Schedule I Illegal drug. They’re leary to make a jump to an industry still under this much federal scrutiny, particularly with Attorney General Jeff Sessions at the helm with his very outspoken opinion against cannabis in all forms.
The uncertain relationship between the federal government and the states that have legalized cannabis are still keeping investors and job seekers away in fairly significant numbers. Industry insiders say that the federal government’s stance is hurting recruiting efforts and keeping some investors away.
However, for those willing to be on the cutting edge and for those who understand finance, the industry is a potential gold mine. Just ask Morgan Paxhia, co-founder of Poseidon Asset Management, a $25 million San Francisco hedge fund with an exclusive focus on the marijuana sector.
Like Peterson, Paxhia also was affected by the financial crisis as a New York trader at UBS. Paxhia felt like the financial industry was cratering around him, and he was eventually laid off in 2009. After a few years as an investment advisor, he and his sister Emily started Poseidon in 2013.
The two siblings were attracted to the tremendous possibilities. They felt like people were too afraid at the time, but they took the plunge. It turned out to be a huge opportunity.
Peterson says people seem a little less skittish these days, and he regularly gets calls from people wanting to make the switch. He says the industry is seeing a surge of people with “traditional business backgrounds."