Marijuana and Money: An Increasingly Comfortable Relationship?
It’s long been advised to “follow the money” if you want to know the truth about a situation. Following the money involved in the nascent marijuana commerce reveals a rather interesting story of extremes.
I want to follow the money at the grass roots level of the industry and also take a look at how venture capitalists are viewing the potential of pot.
Perhaps the biggest problems marijuana entrepreneurs are facing today are the contradictions between a variety of state laws and federal laws. A growing number of states have okayed marijuana for medicinal use and some of those are going even further and allowing it to be used legally for “recreation.”
The Obama administration is essentially looking the other way and not pitching legal battles with states that are loosening cannabis codes. However, the next administration could take a different position.
A ‘cash flow’ problem
A major problem for sellers is that banks won’t allow them to open accounts because to the feds, who have a pretty tight grip on the banking industry, it’s still drug money. Because of this, most sellers conduct a completely cash business it creates logistical problems and prevents growth.
First Security Bank of Nevada stepped forward last year and agreed to allow owners of marijuana shops to open bank accounts. Now a Denver-based credit union is being formed to meet the banking needs of the industry – Fourth Corner Credit Union. As the pot industry and banking industry normalize relations, it makes life significantly easier for the sellers. They don’t have to jump through hoops to write checks and they’ll be able to accept credit cards.
However, unless federal law changes, they can’t enjoy many of the tax write-offs that are standard in other businesses.
Is this angel investor high?
Another stream of money to follow are the big bucks from professional investors and noted venture capitalist Peter Thiel made a play in this arena recently. Thiel is well known as one of the early backers of now-famous startups such as Facebook, Spotify and Lyft. In early January, his Founders Fund announced a multi-million-dollar investment in Privateer Holdings, a private equity firm that is solely invested in the legal marijuana industry.
While the marijuana industry faces legal challenges, other Thiel investments have as well. Lyft, and other peer-to-peer transport systems, are running up against laws all around the world. When Thiel puts his money into something like Privateer Holdings or Lyft, he is betting that social, political and commercial pressures will force lawmakers to eventually take down the barriers.
So, now that we have followed two streams of money relating to the marijuana industry, what can we conclude? It seems to me that Thiel is on the winning side. I believe 23 states already allow for medicinal marijuana and four have approved its recreational use. Now that the genie has been let out of the bottle, it will be very difficult for lawmakers to stop this forward momentum.
There will be a lot more money to follow in the future.
