The Marijuana Industry And Its First Crossroads

Editor’s note: Alex Thiersch is a managing principal of Salveo Capital, a private equity firm dedicated to investing in and developing the legal marijuana industry.

Marijuana has come a long way in the United States since California launched its first-in-the-nation medical program 19 years ago. Today, 23 states and the District of Columbia have legalized cannabis to some degree, and public perception of the plant is clearly shifting. Medical marijuana is being used in treatment of a variety of illnesses including several types of seizures, cancer and post-traumatic stress disorder.

New polls by GallupBeyond the Beltway, and General Social Survey all show that for the first time since its prohibition, a majority of Americans support legalization of the plant. Change is coming to the American cannabis industry, and it’s time to prepare for it in earnest.

Marijuana is now on the cusp of mainstream legitimacy, and established business interests are beginning to work with the initial trailblazers of the American cannabis market. Further, while technological innovation is revolutionizing everyindustry, breakthrough ideas in a market as young this one have the chance to become defining cornerstones. Early-to-market products and solutions are seeing widespread adoption in absence of entrenched industry leaders.

New technology firms are playing a major part in increasing the efficiency, transparency, and security of the legal cannabis market. MJ Freeway, BioTrack THC, and Agrisoft have all developed software to track the plant from seed-to-sale, protecting the integrity of the supply chain at every step. Additionally, I constantly see proposals from developers aiming to find new ways to connect grower to sellers and sellers to consumers.

Companies like Open Vape are establishing benchmarks on what it means to consume marijuana in the 21st century. The company saw the intersection of the increasing popularity of e-cigarettes and the legalization of marijuana, and acted swiftly to become one of the biggest names in the industry. The firm’s convenient, portable, oil-based vaporizer designs were among the first to market, enabling it to now boast roughly 270,000 units sold per month.

While new vape pen designs continue to be one of the most popular uses of applied technology, advances in things like grow lights and dosing machines have the potential to change the industry at a far deeper level.

Intelligent Light Source, for example, is aiming to change the quality and quantity standards for all indoor grow industries through developing LED light systems that mimic the exact needs of particular plant species. The company launched recently trying to shift the paradigm away from simple light intensity toward shifting spectrums and pulses matching the plants’ natural growing cycles. This, the company says, increases not only the size of the yield, but also the quality of the final product while using less energy.

Change is coming to the American cannabis industry, and it’s time to prepare for it in earnest.

The individuals at the forefront of marijuana today are as American a success story as exists, seizing opportunity and creating success through ingenuity and determination, without a national infrastructure, and without the support services that businesses today take for granted. We are reaching a moment, however, where will and energy are not enough.

We like to talk about the spectacular development of the last few years as a “green rush,” but what we’ve experienced up to this point is merely a sign of what’s to come. When we achieve real mainstream acceptance — including comprehensive federal regulation of medical and adult use — we will see astronomical growth if we are prepared, and have developed the resources to fully take advantage of it.

Startups are stepping up to fill the structural gap, but the plant’s long legal prohibition has left a lot of holes to fill, and in these early stages there is still a long way to go before a solid backbone of services is in place.

New Frontier Financials, for example, seeks to harness the power of big data and apply it to the marijuana industry by capturing market trends and user demographics to generate sophisticated analytical models. Every major industry in the world has leveraged this kind of data as a predictive tool for cost-effective decisions. The cannabis industry is behind in that it is only building these tools now, but this sort of analysis has the chance to become part of the foundation of the business nationwide.

The vast majority of proposals that cross my desk are from people with decades of business experience pairing their exhaustive backgrounds with the new approaches of budding entrepreneurs. They work in a variety of more traditional fields — from finance to marketing, from real estate to manufacturing, and from pharmacy to commercial farming.

Dispensaries and cultivation centers are sexy investments right now – and of course we are committed to supporting legal growers and sellers in the United States. However, it will also take development of standardized packaging, voluntary product testing, and sophisticated marketing to build a mature, long-lasting, robust industry.

The introduction of bipartisan bills by high-profile politicians in the House and Senate to legalize medical marijuana is evidence that the national conversation is beginning to see legal cannabis as serious business. We must see ourselves that way as well. It’s very likely that half the country will have medical marijuana laws on the books by the end of 2016, and 18 of those states will have likely moved from medical-only to fully regulated adult use by 2020.

As the marketplace grows and acceptance increases, the consumer base will grow far beyond its current scope. National brands will develop, directed to a wide array of consumers from doctors to lawyers to soccer moms. The adult use market will have to diversify, appealing to as many different palettes and lifestyles as beer, wine and spirit companies do today.

From a medical standpoint we cannot refer to strains like “Sour Diesel” or “Jack the Ripper” as migraine medication or “Blue Crack” and “Crazy Miss Hyde” as a treatment for arthritis. A cancer patient should not walk into a dispensary and order “Ghost Train Haze” to relieve nausea related to chemotherapy.

As more research into the plant is done, it will result in a deeper understanding of how and why marijuana is used as an effective treatment for a variety of serious illnesses in many parts of the country. As the chemicals in the plant are isolated, and their interactions with the human body are charted, new strains will emerge to allay an even wider range of maladies. These targeted, refined strains will be developed as medicine, and will be labeled as such.

We’re already seeing the establishment of testing labs in several marijuana markets devoted not only to compliance, but also to clinical research and product development. Scientists exploring the full potential of the cannabis plant, and finding new ways to harness and deliver it, will have a huge hand in shaping the industry’s future.

This is an exciting time for marijuana in America. We are at a turning point where perception and law are both beginning to lean in favor of legalization. As stigmas fade and ideas change with regard to legal cannabis, the opportunities for dedicated, ambitious, innovative individuals are limitless.