California Marijuana Legalization Would Cause ‘Sea Change’ in Capital for Cannabis Startups

October 3, 2016
First Harvest Financial

Investors present at the Elevate cannabis startup conference in Oakland declare that California’s legalization of marijuana would provide stability for the industry, subsequently reducing risk for potential investors.

If California decides to legalize marijuana for recreational use, venture capitalists from across the country will arrive in droves. Speakers at the Oakland conference predicted that a flood of cannabis startups would begin to appear all over the country.

There are nine total states that will vote on marijuana’s legalization. Arizona, Maine, Massachusetts, and Nevada will vote for its recreational use, while Arkansas, Montana, Florida, and North Dakota will be voting for use within medical settings.

Of all the states, however, California shows the most potential: there is a plethora of investors who reside within the state, and their contribution to the market would be astronomical – if it can be proven that there isn’t high risk involved.

Steve Berg, an ArcView Group partner, said “as productive as the market is today in terms of available capital, assuming we do see passage here in California … there is going to be a sea change.”

During the Elevate conference in Oakland, Berg went on to declare, “There is a great hunger, and with further legitimacy of increased legalization, we’re going to see a lot more folks jumping into the space and writing bigger and bigger checks.”

Since Colorado’s monumental legalization of recreational marijuana in 2014, more and more money from investors has been finding its way into the market for cannabis. The year of its legalization, $97 million was invested into the market. In 2015, $215 million was invested in the space, according to an analysis by CB Insights. California’s legalization could increase this number far beyond last year’s figures.

“California coming online is a large hurdle, frankly. If we can get over that, we’ll see a lot more institutional players start to consider this just because of sheer market size,” said principal at Privateer Holdings, Nico Richardson. “Right now it’s too much of a patchwork.”

Despite the potential for California to be one of the largest markets for cannabis, legalization by the state would not immediately pave the way for investors to pour all of their money in: federal law still classifies marijuana as a Schedule 1 substance. This means that it is illegal to use, produce, or manufacture marijuana, which highly dissuades potential investors due to the possibility that such startups could get shut down.

Berg declared that the market “needs to seem less exotic and less risky, and with more regulation, you achieve that.” For more information regarding legalization in California, [Click Here].