I want you to picture the stereotypical cannabis user. What kind of clothes are they wearing? What does their hair look like? Where do they work?
Do they look something like this?
Now I want you to think about a 55-year-old white collar worker. What kind of clothes are they wearing? What about their hair and general appearance? What kind do job to they have?
Obviously the first photo is the perfect stereotype for the average cannabis user, while the second photo would be considered the perfect example of someone who would never touch the green plant.
However, once the stigma that exists around cannabis fades, it’s highly likely that the largest consumers of cannabis products will be from the demographic represented in that second photo.
Cannabis has a reputation of being a street drug that criminals consume. Only those who want to stare at a TV all day and eat chips consume cannabis, right?
The bad reputation that surrounds cannabis is the exact reason why investing in this growing industry will be so incredibly profitable. By the time the general population embraces cannabis as a legal product, all of the early profits will have already been made by early investors.
Now, don’t read this as ‘marijuana is a wonder plant that will fix everything.’ The truth is that there are far too many unknowns to make such a statement. Due to cannabis being illegal in most countries for the past 100 years, there haven’t been a sufficient amount of studies to prove things one way or another.
However, even though there are many unknowns about cannabis, we do know with certainty about the difference of some of the compounds within the plant.
The two most well known compounds are THC and CBD. Tetrahydrocannabinol, better known as THC, is the main psychoactive component of the cannabis plant. THC is what makes consumers feel ‘high’ and is the main reason why it has been banned by so many governments.
Cannabidiol, which is CBD, does not have any psychoactive side effects, but has been proven effective in the treatment of pediatric epilepsy. CBD is also used by many people as a treatment for arthritis, inflammation, anxiety, sleeplessness, and dozens of other ailments.
In today’s world, nearly every human on the planet ingests some substance to treat their individual challenges. Alcohol is used by those who are stressed, have trouble sleeping, or have pain; tobacco is used to alleviate anxiety; and pharmaceuticals are used for everything from acne treatment to pain management.
For the average consumer who is in the market for substances that treat any of the above problems, CBD will become a clear alternative to alcohol, tobacco, and pharmaceuticals. This is from the perspective of expense, side effects, and ease of consumption.
Most importantly, from an entrepreneur or investor perspective, CBD products can be legally shipped and sold in the US and many international countries. That means that CBD products can be sold without the extremely difficult licensing requirements that are required for traditional cannabis products.
For an entrepreneur or investor, cannabidiol products offer the lowest barrier of entry into the cannabis market. But that also means that it’s a crowded space with lots of competition.
There are currently hundreds, if not thousands, or CBD based products available on the market. Some products are marketed towards senior citizens, some are aimed at hipster millennials, and then there are CBD consumables for animals.
Really, what it comes down to is branding, marketing, and sales outlets. As long as someone can make a well designed brand with effective marketing and efficient sales outlets, the sky is the limit.
But… there is a big issue you should be aware of. Almost all CBD companies in the market today source their actual product from one of only a handful of companies that manufacture CBD oil.
This is known as ‘white-labeling’ where a manufacturer makes a product that they then sell to companies that put their own branding on the packaging. This is very common in almost every food category you can think of. Whether it’s breakfast cereals, crackers, juice, or even meat products, the reality is that there are far more brands than there are manufacturers.
That’s because the capital investment required to actually manufacture products at a mass scale is extremely expensive. For an upstart brand, it’s much more economical to contract a white-label manufacturer instead of building out an entire facility.
Likewise, a major manufacturer needs to be selling as much product as possible and therefore relies on dozens of boutique brands to buy their product and resell with new branding.
So, from an investing standpoint, there are two very obvious opportunities in the CBD market right now.
Create your own CBD brand. This is both an excellent idea and an extremely dangerous one, depending on how skilled you are at selling. I’ve written a step by step guide here, as it’s a topic that’s big enough for a separate conversation.
Invest in one of the handful of CBD manufacturers that are currently in operation. Due to laws in certain jurisdictions, weather trends, real estate costs, and a number of other factors, there are certain regions throughout the world that are more friendly for manufacturing CBD than others. One of those places is the state of Oregon, where several very well regarded CBD manufacturers are located. In fact, a couple of these manufacturers are so successful that they aren’t even taking any investment, as they have been profitable within their first year of operation.
As a parting note, if you are thinking of growing your own cannabis to extract CBD, then you might want to pump the brakes. As we speak, there are hundreds of farms throughout the world that are shifting their crops towards hemp. These are almond farms, corn farms, and even tobacco farms that all see much higher profit potential from growing hemp (which is the main crop that CBD is extracted from).
There are many investing opportunities in the cannabis space that the majority of investors are overlooking because of the negative stigma that surrounds marijuana. But for those willing to take the early dive in, there will be (and already has been) huge reward.