On Jan. 1, the date that Colorado’s retail marijuana law took effect, if someone would have asked Peter Adams whether investors should buy into the cannabis industry, the executive director of the Rockies Venture Club would have advised them not to do so.
“That was Jan. 1,” said Adams, whose organization supports “angel” investors, or those who provide investments to entrepreneurs or small startup businesses.
Not even two weeks later, during an “RVC Angels Unplugged” event, one of the panelists touted that an investment in a cannabis firm generated a tenfold return in a nine-month period.
A month later, officials for Evolutionary Genomics, a Lafayette-based company that landed early stage funding from the Rockies Venture Club and others for developing a gene discovery process for crops, told Adams that they were applying the technology to cannabis.
Evolutionary Genomics raised more than $4 million in two weeks.
“We’ve never had a raise like that,” Adams said.
Map: Colorado recreational marijuana shops and medical dispensaries
Noticing heightened investor interest in the cannabis industry in addition to “wacky” valuations drawn by some in the marijuana business, the Rockies Venture Club decided to host its first Cannabis Capital Summit.
The one-day event at the end of May was established to provide some thought leadership and education for investors and a forum for a half-dozen companies in the cannabis industry — among them GrowBuddy and Broomfield-based Easy Trim LLC — to pitch their technologies and products.
Adams drew a parallel between the cannabis industry and the dot-com bubble of the 1990s.
“The reason for the euphoria at that time (was the idea that) the Internet is going to change the way retail works, going to change the way people buy; and the people who get in early are going to make a ton,” he said. “In cannabis, it’s the same sort of thing. … There’s just a ton of money chasing these deals.”
To a certain extent, there’s a natural selection that occurs within boom cycles, but trying to predict the billion-dollar idea or when a bust might occur could be more difficult than other industries.
“What’s different is there’s a huge unknown of how fast this is going to unroll,” he said, noting state- and federal-level adoption of cannabis-related laws and whether financing and lending will ease.
And while some investors are seeing quick, healthy returns on cannabis products businesses, those on the fringe are becoming attractive targets because of their potential for expansion and adaptability to other markets, he said.
“If there is going to be a boom and bust, they’re going to be more immune to it than others,” he said.
“Startup industry”
As the cannabis industry become more sophisticated as do the technologies and products that support the business, those involved should remain focused on their fundamentals, said Taylor West of the National Cannabis Industry Association.
“This is a booming and profitable industry, but it is not the license to print money that some people perceive it as,” she said. “In order to be successful, you have to navigate a lot of challenges. There are a lot of costs associated with this.”
Dig it: Worm business wriggles into marijuana market
Boulder-based Miller Soils, which has inoculated biochar and blended the biomass into its organic soils, has gone from supplying 20 yards a month to 100 yards a month, and the company’s founder sees the potential to supply a couple thousands yards per month.
Louis Miller, however, has intentionally taken a “slow and persistent” approach to growing his business.
“We’ve had to adapt to the difficulties that some of our customers have with the banking system as well as working with what basically is a startup industry,” he said.
Devin Liles, an owner and head of production at The Farm recreational marijuana shop in Boulder and Root Organic, the company’s sister medical marijuana shop and grow operation, said 85 percent of his time is spent ensuring his businesses are in compliance with the newly formed state regulations.
“The biggest help that the state could be to my business is to make sure that everyone is playing by the rules,” he said. “I can only assume that they’re having as tumultuous and difficult a time implementing as I am trying to comply. I have compassion for (state regulators) and for us and all of us in this scenario.”
The industry remains in a formative state and the legalities of the business are complicated. West advises all cannabis industry businesses to have an attorney, to comply with state regulations and be aware of the inherent risk that comes with the business.
“It is growing and becoming more mainstream every day, but the fact remains, it is considered federally illegal,” she said.
When U.S. Drug Enforcement Agents cracked down on medical marijuana operations in 2012, the moves nearly crippled Easy Trim LLC, a Broomfield-based maker of bud trimming machines, said Mike Cross, who co-founded the company in 2011.
“I think that put the brakes on for a lot of people,” Cross said. “For us, especially, I think we were hit hard because (receiving a trimmer as a shipment) is an obvious red flag.”
The climate is more favorable now, Cross said, noting that under new regulations, the trimmers are no longer considered paraphernalia and that the political environment has improved.
A couple weeks ago, the U.S. House of Representatives voted to defund DEA medical marijuana raids in states that legalized that aspect.
“I think the momentum is so positive for the industry right now that I don’t really have many concerns,” Cross said.
Cross expects “substantial growth” for the privately held Easy Trim this year, which notched triple-digit sales growth last year.
Contact Camera Business Writer Alicia Wallace at 303-473-1332 or wallacea@dailycamera.com.
