Sure, there’s plenty of money to be made from marijuana, but don’t expect Budweiser or Philip Morris to get into the act in a big way any time soon.
With medical pot already making billions and sales of legal recreational cannabis flying high in Colorado and soon Washington State, plenty of bloggers and pundits are already speculating about who the future Coca-Cola or Marlboro of pot will be.
It’s a fair question, but naïve at this point. The legal marijuana business is still much too young for major conglomerates to wade in. When you get big enough to reach the Fortune 500, your main priority is keeping Wall Street and your board of directors happy by holding onto the market share and the revenue that you already have, without taking big risks on unproven products.
A few venture capitalists are starting to raise money for pot-related start-ups. Such early-stage money typically involves big risks with rare payoffs. Out of 20 investments, maybe one could prosper, if they're lucky. These early weed investors are focusing on the pick-axes and blue jeans of the Green Rush: fertilizer, supplies, services. You could have a tobacco company placing small bets on some of these young companies, but such investments are often long shots that could take a decade or more to pay off. Remember, out of thousands of dot com startups from the '90s and 2000s, only a handful got big: Google, Twitter, Facebook and not many others. The cannabiz probably won’t be much different.
Legal pot suppliers are craftspeople in the vein of microbrew beer makers or independent vineyard owners. But they’re up against a much more formidable competitor than Corporate America: shadowy drug cartels with sway over the international banking system and government officials taking a piece of the action. These folks will work to keep pot illegal if they can - keeping the business out of reach of big corporations or anyone outside of the black market.
Thankfully, a Democratic majority prevailed and brought weed to the retail trade in Colorado and Washington. If it doesn’t get snuffed out by a different set of players in the White House or some kind of popular backlash or adverse litigation, the business will continue to grow. The Budweisers or Marlboros of the world will make their move at some point by buying up a medium-sized player that survived a big shakeout - like Coca-Cola acquiring organic juice drink maker Odwalla or Starbucks steadily growing big enough to threaten McDonald's.
No doubt, there's some research and development money being spent on weed at this very moment. But such studies, in many cases, never see the light of day. Remember, a little more than 100 years ago, the U.S. birthed dozens of car companies and now only three big ones remain. So, for now, anyone looking to cash in on legal pot should consider buying the following stocks: Scott’s Miracle Gro - a big time provider of plant food; Pepsi, owner of munchies-taming products by Frito-Lay; and Activision, one of the largest video game makers.
It may not take a century for a big mainstream player to sell joints from coast to coast, but it’ll be a few more years at least for the industry to flourish and grow big enough to go corporate.