Jun 22, 2019

Axios Deep Dives

By Mike Allen
Mike Allen

✌️More and more Americans are smoking, selling, wearing and making money off weed. So we are doing a Deep Dive on Pot, Inc.

🎬 Today's special report — by Felix Salmon, Dan Primack, Kia Kokalitcheva, Michael Sykes, Courtenay Brown, Jessie Li and Jennifer Kingson — looks ahead to tomorrow's episode of "Axios on HBO," 6 pm ET/PT.

  • Watch a clip of Felix's interview with former House Speaker John Boehner about marijuana legalization.
  • Smart Brevity count: 1,084 words, ~4 minutes.
1 big thing: Weed, Inc.: a dope investment

Illustration: Sarah Grillo/Axios

Venture capitalists are investing record sums in marijuana startups, growing twice as fast as 2018, Dan writes.

Why it matters: These investments are a bet that marijuana will be legalized in the U.S. at the federal level, as it has been in Canada.

By the numbers: The weed sector grew to $1.3 billion for this year through mid-June — up from $1 billion for all of 2018 and $370 million for 2017, according to PitchBook Data.

  • Some of these investments are in actual cannabis growers, while others are in industry sidelines (logistics, finance, retail, accessories, etc.)

There's a catch: Legalization would expand the market for growers, but could render the related startups obsolete: Why would growers need cannabis-specific transportation companies if FedEx began working with them?

  • That could vastly slow the industry's growth, since many of the biggest venture capital firms still avoid companies that "touch the plant" — to keep in good graces of law enforcement and more conservative investors.

The bottom line: Some services brands would survive legalization, just as wine stores persist in areas where wine is sold in supermarkets.

But many would disappear, making these days look like peak weed.

2. Pot poll: 26% want to get high
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Source; Axios/SurveyMonkey poll. Chart: Harry Stevens/Axios

Most Americans support legalizing marijuana nationally (63%), and a quarter want to buy it (26%).

  • Young adults are most interested in buying: 40% of those ages 18–24, and 37% of those 25–34, according to an Axios/SurveyMonkey poll.
  • Over 70% of people 18–44 years old support legalizing marijuana nationally, compared with just half of people 65+.

🍟 Fun fact: 16% of the elderly want to get baked.

Methodology here.

3. Buzz-less weed craze

Photo: Smith Collection/Gado/Getty Images

Gummy candies, soft drinks, dog treats, body lotions — these days, everything under the sun is available with CBD, or cannabidiol, an ingredient derived from a non-psychotropic part of the marijuana plant, reports Kia.

Yes, but: While everyone from Kim Kardashian to Gwyneth Paltrow relishes the supposedly relaxing qualities of CBD, the FDA is still evaluating the therapeutic claims of the industry.

The numbers that matter: In 2018, the U.S. cannabinoid market, including high-THC products with small amounts of CBD, totaled about $10.5 billion, according to a report by Arcview, a cannabis research and investment group.

  • By 2024, the market is projected to grow to $44.8 billion.
  • That tops U.S. legal spending on cannabis (medical and recreational), which Arcview says was $9.8 billion in 2018 and could reach $30 billion in 2024.

Go deeper: Pharma companies are starting to see green with cannabis

4. Weed stocks chill out
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Source: FactSet; Chart: Harry Stevens/Axios

Cannabis stocks are jumpy: On Aug. 1, Tilray — a Canadian company that calls itself "one of the largest and most sophisticated producers of premium medical cannabis in the world" — was worth $1.66 billion.

  • A mere 35 trading days later, on Sept. 20, it was worth $16.37 billion.
  • Today, it's worth $3.3 billion.

The big picture: The marijuana sector as a whole, as valued on mostly Canadian stock exchanges, is not only enormous but pretty stable in size.

The 8 largest companies, collectively worth $39 billion today, have been worth somewhere between $36 billion and $44 billion pretty much all year.

5. Leaf inequality

Demonstrators in New York City seeking to end racial bias in marijuana arrests. Photo: Erik McGregor/Pacific Press/LightRocket via Getty Images

With states rapidly legalizing marijuana, concerns are growing among social justice advocates that people of color — who have been disproportionately harmed by the war on drugs — don't have equitable access to the burgeoning cannabis industry, Felix writes.

"Axios on HBO" spoke to Kika Keith, a community organizer and applicant to L.A.'s social equity program, who has been paying rent on an empty storefront for almost a year — but is still waiting for a license to open her business.

  • "Don't give us any handouts, but give us that opportunity to compete," she says.

Pot means a potential windfall, at least for the few: 

  • When former House Speaker John Boehner joined the board of Acreage Holdings, a U.S. marijuana company, he was granted shares currently worth about $12 million. If the company gets sold as anticipated, Boehner's stake will be closer to $20 million. 
  • Boehner was "unalterably opposed" to legalization when he was a politician, a stance that had significant criminal-justice consequences.
  • He told "Axios on HBO": "I don't know that there's any harm that's been done" by any delay in legalizing marijuana.
6. Dude, where's my cash?
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Adapted from a Financial Crimes Enforcement Network report; Chart: Axios Visuals

More banks are offering checking and savings accounts, wire transfer services and even loans to marijuana companies, Courtenay reports.

  • What's going on: It's illegal for banks to handle money from criminal activity, which marijuana is still considered at the federal level.
  • Even so, a growing number of small banks and credit unions have been serving the marijuana trade — and charging high fees for the privilege.

The Treasury Department's Financial Crimes Enforcement Network — FinCEN — tracks banks that serve what it calls MRBs (marijuana-related businesses).

  • Banks that serve pot businesses must keep tabs on every single transaction and report customer activity to regulators.
  • Banks pass on the cost of all that paperwork.
  • "A cannabis operator can count on [paying] several thousand dollars a month in banking fees," Chris Call, CEO of North Bay Credit Union, which offers banking services for marijuana companies, tells Axios. "It'd probably be in the hundreds of dollars for [a non-cannabis] company."
7. Budding branding

Wiz Khalifa onstage Aug. 25, 2018 in Austin, Tex. Photo: Rick Kern/WireImage

Barely a day goes by without another trade show where cannabis entrepreneurs gather to tout their products — with creatively named brands like Schnazzleberry, Lucky Charms and Train Wreck, Michael reports.

  • The big picture: There are hundreds of trade shows showcasing thousands of brands, and even a budding industry of weed-specific branding consultants and marketing agencies.
  • As in any emerging industry, there is growing specialization, with some trade shows favoring hemp and marijuana growers and others catering to more exotic specialties like vaping technology.

Celebrities are riding the wave, with Snoop Dogg (Leafs By Snoop) and Wiz Khalifa (Khalifa Kush) creating products they believe in.

  • Mike Tyson's business, Tyson Ranch, has both a diverse product line and a corporate mission: "to make cannabis universally understood and accessible."
8. 1 fun thing: Wearable weed

Photo: Istock/rgbspace

You don't have to smoke, eat or vape it. Now, you can smear it on your body, Jessie writes.

  • CBD skincare products claim to hydrate, moisturize, cure acne, reduce wrinkles and even combat aging.

Beauty and retail giants are trying to cash in on the hype: Just step into your nearest American Eagle, Sephora or CVS for CBD-infused lip balms, mascaras and moisturizers.

  • A search for "cannabis" on Sephora’s website yields 38 products, including a popular $100 "Royal Oil" from Lord Jones that claims “oils so pure, they retain the original aroma of the cannabis plant.”
  • Then there are luxury brands like Nannette de Gaspé, which stocks a $325 Bain Noir Cannabis Sativa Bath Soak Treatment.

The bottom line: One study found cannabis seeds extract cream helped men with acne while another found some anti-inflammatory effects. But there haven't been any large-scale human trials on the efficacy of CBD in skincare.

Mike Allen