San Diego Legal, recreational marijuana sales are surging in the U.S. and are expected to surpass $6 billion annually as more than a half-dozen states, including California, are expected to take up the legalization issue this year.
The growing consumer market for marijuana is good news for more than just dispensaries and farmers.
San Diego’s manufacturers tied to the marijuana industry are poised to boost revenues, as well, with vaporizers, testing gadgets and industrial tools.
Marijuana sales grew from $4.6 billion in 2014 to $5.4 billion last year, according to marijuana investment and market research firms ArcView Group and New Frontier. Almost all of that growth came from recreational sales.
They estimate the market could reach $6.7 billion this year as seven states consider legalizing recreational marijuana use, joining Washington, Oregon, Colorado, Alaska and Washington, D.C., and four states consider legalizing medical marijuana, joining 23 other states.
“The more consumers for cannabis there are, the more consumers for our device,” CDx Inc. CEO Daniel Yazbeck said.
CDx makes MyDx, short for “my diagnostic,” a pocket-sized device that can test food, water and air for chemical markers. The startup, which raised more than $7 million, debuted the device with a sensor to analyze marijuana’s chemical properties and identify various strains. The information is relayed from the device to a smartphone app.
The device costs $700, a potentially tough sell for a casual user. But CDx also offers a growers’ package for $900, which includes a more robust warranty and additional sample inserts. The company may also debut an app for growers that could help them determine the best time to harvest based on the plants’ levels of the active chemical THC.
“The distributors we’re bringing on board are focused on the grower market,” Yazbeck said. “We’re realizing that for the grower market, price isn’t an issue.”
CDx has about 1,000 units in the field and reported third-quarter sales last year of $219,000. Yazbeck said the company will likely surpass $1 million in revenue this year.
The Industrial Side
Marijuana-related startups are also seeing a spike in venture capital interest, with $183 million invested last year, compared with $52 million in 2014, according to VC database Pitchbook. The number of deals also jumped, from 31 to 57. But industrial products, as opposed to high-tech gadgets such as MyDx, can be a tough sell for investors.
GreenBroz manufactures marijuana harvesting equipment. Its main product is a trimmer that removes leaves from marijuana buds by circulating them in a box over tiny holes, clipping the leaves as they pass by. A tumbler, which extracts a potent resin byproduct called kief from the discarded trimmings without the use of chemicals, and a gin to remove stems from buds, are due out this quarter.
“The gold rush is the time to be in the pick and shovel business, but picks and shovels aren’t sexy,” CEO Cullen Raichart recalled an investor telling him.
Raichart, a former Navy technician and Hewlett-Packard engineer, said he founded the company after seeing how most tumblers were circular drums. He believed a box shape would improve the process, but found more initial interest in his trimmer design. He eventually secured a $150,000 investment and saw $3 million in revenue last year. Raichart expects to close $8 million in revenue this year by debuting new products and expanding.
The trimmers sell for $5,000 to $10,000 depending on size, and the tumbler and gin will sell for $3,500 each.
Stigma Goes Up in Smoke
Manufacturers said they expected broader legalization to drive an influx of new sales as consumers become more comfortable with using marijuana and as stigmas fade. Herbalizer makes halogen-based vaporizers, which heat herbs to specific temperatures, allowing users to inhale a vapor infused with plant oils. While Herbalizer is clear its product is meant for a variety of plants, it doesn’t deny marijuana legalization bills led to an influx of business in those states.
“We’ve already seen the impact happening with the larger acceptance in the social structure,” community manager Brandon Ward said. “There’s an acceptance of this as a legitimate way to handle medical issues.”
Revenue topped $1 million last year and is on track for $3 million this year, Ward said. The Herbalizer sells for $599.
Raichart said Oregon is GreenBroz’s largest market now, but Northern California would likely leapfrog to the top spot if the state legalizes recreational marijuana this year.
“Legalization would be an absolute godsend,” Raichart said. “California’s the biggest market. Once it opens up, we can be out in force.”