How to Invest in Marijuana Legalization

In a nondescript industrial park in this city’s Montbello neighborhood, employees at Medicine Man Production are hard at work harvesting marijuana.

Wearing navy blue scrubs under bright industrial lights, workers toil in 40,000 feet of cultivation space, picking through mature plants with fuzzy flowers so large their stems double over with the weight. After harvesting, the flowers are dried, processed, packaged and sold for as much as $330 per ounce.

It’s that profit, as well as the growing legalization of marijuana for recreational use, that has caused Medicine Man and other marijuana cultivation facilities and retail shops to spring up in this Denver neighborhood – so much so, in fact, that residents often refer to the area as “Potbello.”

“The canopy is where the money is,” says Brett Roper, founder and CEO of Medicine Man Technologies, which started trading publicly this year on the over-the-counter market as a cannabis-industry consulting business.

Marijuana is a profitable business but comes with tight regulations as state governments legalize the industry. Medicine Man Production is privately held, but some of its owners also own a minority position of the publicly traded Medicine Man Technologies. Medicine Man Technologies earns profit by selling equipment designs and working with marijuana growers, but it doesn’t touch or sell the plants – that’s the role of Medicine Man Production.

The complex nature of this budding industry – legalized by some states but not the federal government – adds business and political complications to the space that’s arguably one of the riskiest in the world for investors.

“There is a tremendous amount of homework to do,” says Morgan Paxhia, co-founder and managing director at cannabis hedge fund Poseidon Asset Management. “But, at the same time, we don’t want to turn people off from something that could be a huge winner. There’s no other marketplace that’s offering this much growth in the world.”

Retail sales of legal marijuana in the United States rose from $3.4 billion in 2014 to $4.8 billion last year, says Matt Karnes, founder of cannabis industry financial analysis and research firm GreenWave Advisors. Based on the anticipated trajectory of legalization, the firm expects that figure could hit $25 billion by 2020.