The pharmaceutical industry has grown into one of the largest and most profitable industries in the modern economy. Are we headed towards a Big Cannabis Big Pharma reality?
While the names of big pharmaceutical companies might not be instantly recognizable, their products certainly are. Drug advertising is widespread on television and in magazines. The marketing machine that promotes prescription drugs rivals marketing expenses of retail products. As market demand grows and national legalization nears, Big Cannabis could begin to look a lot like Big Pharma.
Just as drug companies finance their research, development, and commercialization activity by raising money from investors, cannabis companies will likewise need to raise capital to support their own work. The growth potential of marijuana companies is the kind of opportunity that investors haven’t seen in decades.
The Motley Fool notes that Angel List, a website for startups to recruit workers and raise funds, listed 449 companies involved in some aspect of the marijuana business. Private equity firm Privateer Holdings last year raised $75 million to inject into cannabis companies. Among its holdings is Marley Natural, whose line of cannabis products includes body care and smoking accessories.
Case Study: Canada Regulates
To get a sense of how regulating cannabis production will affect the medicine’s quality, we can look to Canada. In 2013, Canada implemented the Marijuana for Medical Purposes Regulations. While previous regulations permitted medical marijuana, they set few standards for the drug’s production.
The new Canadian law placed marijuana under the same regulations as other medical narcotics while also setting formal standards for marijuana production. As a result, Canada has large companies lining up to get clearance from Canadian regulators so they may produce and distribute cannabis goods.
Companies need to go through a detailed process to secure licensing from Canada’s regulators. But this process is intended to ensure that products offer both consistency and quality – characteristics that are also in line with the requirements that Big Pharma must meet.
The U.S. cannabis industry already boasts some large companies. The largest might be GW Pharmaceuticals, a publicly traded company that has a market capitalization of nearly $1 billion. In addition to companies producing and selling marijuana products, the industry has given rise to companies that supply, consult, or bring professional expertise to the table.
There are some financing challenges for companies in the cannabis business. Even in states where law permits the sale of marijuana products, many banks are spurning handling funds from marijuana businesses out of fear that doing so opens them up to potential prosecution under federal laws. As the marijuana industry grows and the financial industry sees that there is money to be made, these issues should resolve with time.
As the marijuana business gains traction, companies in all aspects of the industry could become attractive investment targets, similar to the way that up and coming drug companies attract investments from venture capital firms. The Motley Fool notes that venture capital firms are filling the financing gap that startups face, providing early-stage funding that is leveling the playing field for a wide range of marijuana-related businesses.
Right now, the cannabis industry is tiny relative to the size of the pharmaceutical industry. But pharma gained its size, influence, and profits, over decades. As the cannabis industry develops, it’s only a matter of time until Big Cannabis follows in pharma’s footsteps.
A Cottage Industry
If you’re an entrepreneur in the cannabis business and are worried about big business pushing you out, don’t be. The cannabis industry is set to be huge, with room for all of us. You can find your niche or even create it. Cannabis symbolizes a revolution. Let that drive your business model, your design, and your product positioning.
The cannabis industry is slated to be the fastest growing industry, with some projections estimating it will reach up to $50 billion annually by 2020. There is plenty of room for both Big Pharma and “cannapreneurs” like yourself.
We’d love to hear your thoughts on where this industry is headed and how entrepreneurs can establish their place in the market. Please comment below!
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