A pesky regulation will keep outside investors from blowing up Colorado's pot market.
A group of 60 or so investors looking to buy into the burgeoning legal marijuana industry met with entrepreneurs in Denver on Tuesday. Despite the fact that recreational marijuana is now legal in Colorado, "90 percent" of the investors at the event "won’t be able to invest" in Colorado-based businesses, says Steve DeAngelo, head of ArcView Investor Network. "The investors are here," DeAngelo says. "They want to do the deal. But the deal can’t be done because Colorado law won’t allow it."
DeAngelo is the executive director of Harborside Health Center, arguably the most resilient medical marijuana dispensary in California, and cofounder of the ArcView Group and ArcView Investor Network, both of which are vehicles for angel investments in the marijuana industry.
The obstacle DeAngelo is referring to is the residency requirement that the Colorado legislature created, at the behest of a post-election task force, to "discourage out-of-state residents from moving to Colorado expressly to establish an adult-use marijuana business." The rule, which Colorado residents did not vote for when they approved Amendment 64, requires a person to have been a Colorado resident for two years before they can apply for a marijuana business license, and three years before they can invest in a marijuana grower or retailer. It also has to be the investor's primary residence. For comparison, Washington state has a three month residency requirement, and it doesn't have to be the investor's primary residence.
Few members of the ArcView Investor Network fit that description, and DeAngelo isn't sure how many out-of-state members, if any, would be willing to move to Colorado and wait three years before getting involved in the state's marijuana industry. "It’ll have a deterrent effect on the industry," says DeAngelo. "You’re seeing a lot of development, but you’d see even more if the residency restrictions hadn't been imposed."
The silver lining for investors is that growing and selling marijuana aren't the only investment opportunities. "There’s obviously the industry itself, but there’s also the ancillary market," says Mason Tvert of the Marijuana Policy Project, the group that led Colorado's legalization campaign (and which did not push for a residency requirement). Paraphernalia, like vaporizers and vape pens, are an obvious opportunity, but the list doesn't end there. Tvert points to Uber's disruption of the taxi industry, and suggests that a similar app could be developed for marijuana. He also wouldn't be surprised to see interest grow in specialized gardening products and classes on cultivation, thanks largely to the provision in Colorado's law that allows adults to grow marijuana in their homes.
ArcView members do indeed seem interested in those aspects of the market, having already made investment commitments to a marijuana packing company, a vaporizer company, a business that specializes in marijuana concentrates, and Denver-based Canna Security America, which provides security for marijuana retailers and grow operations. While ArcView investors know they "are free to invest in supporting activities, in real estate and software," DeAngelo says, "They’re interested in getting closer to the plant, not farther away."
Which means that for now, many Colorado potpreneurs will have to rely on in-state money to grow.