Sunday, September 13, 2015

Marijuana Finance

Thanks to a reader.
Anyone else catching a whiff of bread-and-circuses?
From Scotsman Guide, August 28:

Lending in the high-risk, high-reward world of the legal cannabis industry
The growing multibillion legal cannabis industry still has a major banking and financing problem.  
A mostly all-cash business that banks and credit unions have shunned, marijuana also presents a wide-open opportunity for wealthy private investors and hard-money lenders who have faced no competition from mainstream lenders or large corporations.

The risks, though, are significant.

Adult recreational use of marijuana is legal in four states and the District of Columbia, and some 23 states and D.C. allow medical use. The industry had sales of $2.7 billion in 2014, up 74 percent from the prior year, according to market studies from The ArcView Group.

But industry participants describe a financing system that resembles the Wild West. Under federal law, marijuana is still illegal, which has cast a cloud over the industry. The future of the legal cannabis industry may depend on who wins the next presidential election, or whether Congress passes a bill that legalizes marijuana.

Fearing reprisals from federal authorities, an overwhelming majority of banks and credit unions shun marijuana businesses, said Taylor West, deputy director of the National Cannabis Industry Association. Businesses are stockpiling huge amounts of cash in safes, she said, paying taxes and employees and buying basic equipment in cash. This has presented a number of problems.

“It is a massive security risk, first and foremost,” West said.  “Then there is the question of transparency and accountability. It is that much more difficult for the regulatory bodies to oversee what is going on when you are forcing these businesses to operate in cash. It is really hard to do accounting and all of those things when you have also got this physical challenge of not having automatically generated records.”

Last year, the Obama Administration issued guidance to depository institutions designed to make traditional banking more accessible to the industry. A U.S. Treasury official said last year that 105 banks and credit unions were banking marijuana businesses, a figure that was widely reported in the media. West, though, said she is skeptical of that number, and believes many of these banks were issuing reports to federal regulators that they were closing – not opening - the accounts of marijuana businesses.

West said she knows of no traditional lender that is writing loans to businesses directly involved in selling or producing marijuana and its products.

“We have lots of members who have been able to get bank accounts, either by working with a personal relationship with the bank or going through a kind of don’t-ask-don’t-tell policy,” she said. “But that is not widespread.”

A game dominated by investors, hard-money lenders

Marijuana businesses are primarily financed by wealthy “angel” investors and a few small funds and private lenders, said Troy Dayton, chief executive officer of the The  ArcView Group.
“The angel investor world is exploding right now,” Dayton said. “They see an opportunity and they are not encumbered by the same rules that banks or big institutional investors are. It is a boom happening.”

ArcView's network of wealthy investors have loaded in $50 million into 73 marijuana companies in two years. In most cases, the investors put in money for a direct stake in the company, Dayton said, but private funds contributed about $7 to $8 million in loans. He predicted that the debt side of financing will increase because marijuana businesses tend to prefer loans to other financing, and investors can't easily finance marijuana businesses in some states unless they are residents of the state.

“This is a huge opportunity for people to lend money at higher interest rates,” Dayton said. “You have an audience that doesn’t have access to the traditional banks, but often have very strong financials.”...MORE
 And for more on ArcView,, February 2014 :

Cannabis Companies: At Arc View, Investors Pay to Play
When the Denver cannabis dispensary Medicine Man decided to expand into the recreational adult use marijuana market, CEO Andy Williams sought the assistance of the Arc View Group, an investment and research company, which hosts investor networks around the country five to six times a year.

"They raised more than $1.5 million in a high interest loan deal because investors who don't live in Colorado can't own a part of a business that deals directly with cannabis," said Troy Dayton, co-founder of Arc View.

Medicine Man is one of about 50 marijuana or marijuana ancillary start ups that have benefited from networking with Arc View.

"There are more than $4 million in investments that have happened through us that we know of and these are the first angel investments that have occurred in this sector," Dayton told MainStreet.

A member of the Angel Capital Association, Arc View doesn't directly invest in cannabis companies but rather connects investors who are interested in investing in cannabis companies.

"We don't take any percentage on the deals," Dayton said. "We operate based on fixed membership fees from investors and companies. We run the shark tank for the cannabis industry by facilitating meetings and now we're hosting webinars every week with a few companies for investors who are members."

Membership fees are hefty. Accredited investors pay $3,500 to $5,000 a year depending on the type of membership they select.

"Our member investors run the gamut," Dayton said. "We're seeing an increasingly higher caliber of investors coming out of the woodwork in the last few months. We have billionaires and heads of public companies as well as younger people who sold their tech companies and now are getting into angel investing."

Arc View launched its investor network in November 2011 specifically for the cannabis industry with 12 investors. Today, the investment firm boasts 150 member investors.

"Investors started joining after November 2012 with the legalization of medical marijuana in California and Washington, but we didn't see the real rush until January 1 of this year when Colorado moved forward with retail sales," Dayton said.

Individual investor Bobby Genser parked $100,000 into a company launching a greenhouse to grow cannabis in Pueblo, Colorado but without the assistance of Arc View.... MORE
"The Weed Funding Bubble"
Junior Gold Miners Consider Cashing Out, Pursuing Medicinal Marijuana Opportunities
"Peter Thiel's Founders Fund becomes first institutional investor in marijuana"
Frontrun the Dopers: "These 4 States Will Reform Their Marijuana Laws in 2013"
"Is Monsanto Ready to Enter The Medical Marijuana War?" (MON)
In the Wake of Colorado and Washington State Legalization, Time to Think About Pot-enomics
Here Comes Crop Insurance For Your Dope
The Audacity of Dope: "Oakland ready to approve four marijuana factories"
6% of all power produced by BC Hydro is used to grow marijuana.
If Farm Investing Conference Agenda Is Any Indication, Marijuana Prices Are Going to Zero
Bread and Circuses: Chicago City Council Votes to Decriminalize Marijuana, 43-2
"The Coming Age of Corporate Cannabis"
"Hedge Fund Managers Smoking Out Opportunities In Emerging Market Of Legalized Weed "
As soon as one 'Uber for weed' startup gets cut down, another grows in its place
"The Geography of Pot Prices"
The Marijuana/Solar/Wine Connection
Attention Homeless Dopers: New Berkeley Ordinance Requires Dispensaries to Hand Out Freebies
Considering the co-morbidity of schizophrenia and pot use, and schizophrenia and homelessness, this is probably a good idea.
For Berkeley

And many more. Use the search blog box if interested.