Cannabis Investments

The Potential of Cannabis Investments: Are You Investor-Ready?

With a new year comes new opportunities, so it’s time to talk about cannabis investment and profitability. Are you investor-ready?

Getting an investment in your cannabis business is cause for celebration. But the road to get there is long, requires a heavy lift, and careful consideration of any potential financial partners. Here’s what you need to know about cannabis investments and profitability.

The Cannabis Investment Landscape

The cannabis industry is still, by market standards, a fledgling industry. While the initial rush of the green wave has passed and investors no longer look starry-eyed at cannabis companies, there is still a wealth of growth potential on a state and a federal basis that makes this industry attractive for forward-thinking investors.

What kind of investment would work for your business? Companies in the early stages may want to find an angel investor or a venture capitalist to work with, while established companies may prefer a private equity investor, or to go public like Green Thumb Industries. There are also creative ways of approaching investment opportunities: perhaps you can find a real estate investor who is willing to bargain reduced rent for a percentage of your business.

Any way you approach it, there are risks and rewards to balance when looking at cannabis investments. An influx of cash may be exactly what your business needs to succeed, but how much control or profit are you willing to give up in exchange? The best investment partnerships begin with a crystal clear idea of success and terms of engagement.

Understanding Cannabis Business Models

Different businesses in cannabis may also require different types of investments. A cultivation business may want to partner with an experienced grower in exchange for shares of the company, while a retail business may wish for a silent investor who helps with cash flow but does not concern themselves with the day-to-day operations.

There are also nuances of the cannabis industry to keep in mind when getting investor-ready, the first of which is the most complicated: regulatory compliance. While other “vice” industries like tobacco and gambling have regulations to mind, no other industry has quite the sea of red tape to wade through as cannabis does.

Compliance is foremost to success in this industry, and any good investor is going to want to know how your business remains in compliance in order to understand how you’ll protect their investment.

Among other considerations before approaching investors are:

  • Market demand. What does your business do, and how in-demand is that service? Processors and lab testing are usually in high demand while growing flower and opening dispensaries are areas that have a ceiling.
  • Competitive landscape. The California market is saturated while the New Jersey market is on the upswing. How are you positioning your company to stand out in a sea of competition?

Scalability. All investors desire one outcome: to grow their investment and profit. If you have not considered how you can grow or scale your business sustainably and profitably, start there before approaching investors.

Preparing for Cannabis Investment

A partnership with an investor needs to be a good fit for both parties. Just as you’re evaluating them, they’re evaluating your business.

Familiarize yourself with the due diligence process that investors use to evaluate cannabis businesses. Look at both sides of the coin: speak with investors and ask them what they look for and talk to other business owners who have received investment. Understanding the financial analysis, valuation methods, and how management is assessed helps you set your team up for success, not surprises.

Know too that investors may be cautious around cannabis, given the complexity of the regulatory landscape and compliance risks. Investing in a cannabis business is not the right fit for every investor; you need someone forward-thinking who can see past the stigma of the plant and the lure of the green wave to understand the hard work and consistent effort it takes to be successful in this industry.

Challenges and Risks in Cannabis Investments

Taking investment into your cannabis business is not without risk. While you can do your best to set your business up for success by establishing scopes of work, prioritizing compliance, and empowering your team, there are elements out of your control that can affect your business — and your investment.

Uncertainties around regulations, particularly at the federal level, and changes to regulations at the state level are a constant threat to cannabis businesses — look no further than California’s recent decision to remove CBD products from all businesses outside of dispensaries.

Market volatility and fluctuations also present challenges to cannabis businesses: oversupply and undersupply can bring big changes to the cost of doing business and profit margins, as can market saturation and increasing levels of competition. Supply chain risks are always present as well, particularly for businesses that use international partners.

The public perception of cannabis continues to be a barrier to overcome. If members of your community do not want a cannabis business in their neighborhood, investors may not either.

Insurance Considerations for Cannabis Investments

How does insurance tie into all of this? It goes back to investors wanting to protect their investments. The proper set of insurance policies provides a safety net for your business, protecting your time, energy, and outside investments.

Some states require businesses to carry a certain set of policies while others leave it up to the discretion of business owners. While every cannabis business is unique, there is a set of insurance policies that AlphaRoot recommends to every business as a best practice.

Property insurance

This policy is first-party coverage that protects the Total Insurable Value (TIV) of your operation’s property, reimbursing cannabis companies for direct property losses. Property insurance is particularly important for real estate investors.

General Liability

General liability offers broad protection against some of the most fundamental risks cannabis companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises. Every company with employees or public-facing operations needs this policy.

Product Liability

Cannabis companies offering tangible products or services risk third-party lawsuits claiming bodily injury or property damage. Product liability insurance covers defense fees and settlements, even for ungrounded claims. This coverage is particularly critical in the cannabis space as testing and manufacturing aren’t regulated at the federal level.

Cyber Liability

Cyber insurance protects companies from third-party lawsuits relating to electronic activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent. In today’s digital age when being hacked is a matter of “when” not “if”, this policy is vital.

Directors & Officers

D&O insurance protects cannabis company executives from lawsuits stemming from errors or omissions. It’s crucial for attracting investors, as it mitigates their risk. Most investors require D&O coverage as a condition of investment.

Insurance coverage can also be used as leverage: a claim-free history can show a potential investor just how seriously you take regulatory compliance and safety best practices. Having insurance coverage also shows initiative — you are protecting your investment and will protect theirs too.

Reaching the stage of business where you are not just looking for, but ready for cannabis investors is exciting. To set yourself up for long-term success, approach your search for a cannabis investor with the same strategy, caution, and safety nets that you used to build and protect your business.


Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by email [email protected] or calling 646-854-1093 for a customized letter or learning more about your cannabis insurance options.

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