Legalization has encouraged a boom in the cannabis industry. With several states joining the weed-friendly list and expanding research in the scope of medical application of cannabis, the industry will only expand further in the years to come. The psychoactive nature of the cannabis plant is the primary reason behind the reservation of federal governments across the globe to introduce the plant to mainstream users. Even the regions which have legalized have laid out strong regulations along with tight restrictions through permits, licenses, and heavy costs on setting up and manufacturing. It’s all left government with a stronghold on the cannabis industry.
Several brands have added their names to the hat and are coming up with innovative cannabis-infused product lines. But these are not the only businesses that are present in the cannabis industry. There are various ancillary companies or rather companies that indirectly work with cannabis without physically dealing with it. From tech-start-ups to media and information channels, the ancillary cannabis business is a goldmine of opportunities to participate in the cannabis revolution. Here are seven benefits of choosing ancillary cannabis businesses for your investment.
1. There are fewer regulations to stress about
Unlike cannabis dispensaries or product manufacturing companies, ancillary businesses do not have too many state regulations to comply with. The regulations around cannabis growth and manufacturing are quite tight, which could place stress on the overall costs involved. Whereas ancillary companies can go easy on the operational cost and the insecurity of upcoming regulations. The fact that they do not directly deal with the plant physically ensures that they do not have to worry about permits, licenses, and the heavy costs around acquiring them. It allows the manufacturers to produce products so that consumers can enjoy the relaxing experience of using CBD. They can simply benefit from the boom in the industry by tapping the right opportunities coming their way.
2. They require smaller amounts of funds
Investment Opportunities in selling CBD Canada and legal products are enticing. But the start-up fee involved in setting up these companies is higher, and hence the fund required and the average time before getting a return is significantly higher too. Ancillary companies begin functioning with just a fraction of this funding. They are also low liability and can show revenue within a short span of time. These characteristics make them rather attractive for investors to show interest, especially those looking for their first investments in the cannabis area
3. There is a strong potential for growth
The cannabis plant has carried a drug image for decades now. In fact, influencing the image of cannabis among users has been the greatest challenge for the industry. Today, cannabis companies are highly dependent on ancillary businesses for specialized services that comply with state requirements. It ensures that they influence users in the best possible manner without damaging the brand image. Areas such as marketing are best left to experts who understand the nuances of these areas in the context of cannabis. With a higher dependency of cannabis companies on such businesses, there is a huge potential for growth in this segment.
4. There is scope for expanding business inter-state
While plant-touching companies are facing difficulties in expanding their business beyond state borders with the restriction on shipping and other processes, ancillary businesses have the scope to expand as they like. Every state that joins the legalization list is a potential area for expansion. Also, with prior experience in the area, these companies will find expansion to new regions easier with a brand value created among customers. Regardless of the legal status of cannabis in the state, these companies can operate and benefit from the industry that is rapidly scaling across the globe.
5. They are worthy of long- term investments
While legalization has encouraged several companies to move into cannabis cultivation, it also means that competition has increased. Hence the price of the commodity will begin to fall. These companies may not be able to hit the expected margins in the years to come. It could mean that these institutions may not be as profitable as they are today in the long run. But the influx of supply will not have such a powerful impact on the growth of ancillary businesses. In fact, ancillary business opportunities expand as the industry grows, and companies might become more dependent on these organizations for differentiation.
6. There is a tax advantage
Section 28oe of the U.S tax code indicates that companies that sell scheduled substances cannot declare deductions beyond the Cost of Goods Sold when filing tax returns, or the business will be barred. Given plant-touching companies directly deal with the sale or manufacturing of products associated with cannabis, deductions do not apply to them. Whereas ancillary business can very well take advantage of these deductions just like any other company operating in the non-cannabis business space.
7. They are less volatile
The extent to which market fluctuation affects cannabis companies is evident. There is always a fear of going out of sync and becoming irrelevant in a rapidly evolving area such as the cannabis industry. Yet, ancillary businesses remain insulated to such fluctuations. It is an attractive quality for investors who would like to begin their investing adventures starting from low-risk establishments.
In 2016, a market study conducted by Deloitte projects the growth index of ancillary businesses to be 2.5 times the size of the market for cannabis cultivation. The reason behind this is that most cannabis users are already utilizing the plant while procuring legally or illegally. But new areas such as security and marketing grow alongside legalization, and hence the market scope for the same is rather large. Also, there is a wide choice available for investors in the ancillary side, and these companies tend to secure the brand value even while working with cannabis in such an early stage. Joining the future of cannabis has never been easier.