6 Drivers and challenges for the cannabis space, according to industry experts

AJ Gonzalez | August 28, 2020

The legal U.S. cannabis market has grown from near-zero a decade ago to a projected $20 billion by 2020, and investors are taking notice. The industry saw a $10 billion cash infusion last year as momentum builds around legalization — in part due to the opportunity for job creation and potential for new tax revenue.

Last night, at LeafLink’s New York headquarters, a panel of cannabis experts discussed the rise of the industry, with a focus on the East Coast market. Moderated by our Managing Partner Eric Hippeau, the panel featured two of our founders, Ryan G. Smith, Cofounder of LeafLink, Karson Humiston, Founder of Vangst, and Editor-in-Chief of Green Market Report Debra Borchardt and Vireo Health CEO Ari Hoffnung.

They shared both signs of progress as well as challenges for the growing cannabis industry. Here are six key takeaways.

Driver: The cannabis market is being built from scratch. Brands in the space have a first-mover advantage and those businesses can apply lessons from more established industries as they scale.

“None of the brands that you might be familiar with (whether it’s in liquor or cigarettes or any other world) and nobody from adjacent industries are participating in this industry,” said Eric Hippeau. “Meaning that all of the brands, dispensaries, and workers are brand new. What we’re seeing here is the birth of a major industry that at some point in the foreseeable future will rival the beer industry — all from scratch.”

Challenge: Uncertainty around the future of the industry in states without legalization can make candidates more hesitant to take jobs there compared to places where the market is much further along.

“When we were first starting, I would call people and say I have an awesome job in the cannabis industry and they would hang up,” said Karson Humiston, founder of Vangst, a platform for cannabis jobs. “Now there are days where we’re getting thousands of profiles from people who want to get into the industry. But it’s tougher for us to recruit people from outside of the space in New York because of the level of uncertainty with the industry compared to Colorado or Washington. As the markets mature, the candidates become more comfortable with it.”

Driver: Improved perception and less stigma around the cannabis industry has increased investment in the space. More than ever, mainstream venture capital firms are exploring opportunities in the market.

“It was really important three years ago when we did our seed round that we were just a technology company,” said Ryan G. Smith, founder of online cannabis marketplace LeafLink. “Everyday that thins more and more, and people are more comfortable with investing in companies that touch the plant. We have inbound from institutional investors all the time. A lot of this capital is coming from, largely, the East Coast and big financial centers.”

Challenge: Delays to legalization and issues with regulators remain an obstacle on both the state and federal levels. New York, for instance, dropped adult-use cannabis legalization from its budget for the upcoming fiscal year.

“My hope is that for whatever reason it doesn’t happen this year in New York, the medical program is expanded and that adult’s use gets taken care of legislatively next year,” says Ari Hoffnung, CEO of physician-led medical cannabis company Vireo. “As New Yorkers, we like to be first with everything, and with cannabis it’s hard to say that we’re first. But it takes a long time to change things. The peer pressure we’re going to get from neighboring states is off the charts. It’s no doubt that adult-use is imminent.”

Driver: Requirements for equity candidates (individuals who were negatively impacted by the war on drugs) in cities like Oakland mandate that companies hire a percentage of their workforce from affected communities. This social initiative presents an opportunity to build a highly inclusive industry from the ground up.

“We’re specifically targeting these communities and helping them get jobs,” says Humiston. “It’s really exciting for this industry because all these jobs haven’t been created, so we have the chance to build one of the most diverse, inclusive industries in the country. It starts with prioritizing diversity and inclusion from day one, and building these equity programs into companies.”

Challenge: Old school financial institutions and banks haven’t warmed up to cannabis in the same way they have to other emerging industries, and the same goes for payments companies.

“I cannot report from the floor of the [New York Stock] Exchange or NASDAQ on cannabis, they won’t let me,” said cannabis editor Debra Borchardt. “Because I’m cannabis-only, I’m not allowed. There’s still the stigma within the financial community. It’s easing up, but clearly the stock exchange and NASDAQ both have issues with it. Because of the challenges [cannabis companies have with payments and banks] we’ve seen a lot of businesses get created that do transaction processing.”

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