As more states legalize marijuana, investment assets are pouring into a diverse range of businesses. And where assets go, financial advisors will follow.
But marijuana remains an illegal substance according to federal law, making it tricky for advisors looking to help cannabis entrepreneurs, or clients looking for investment opportunities.
We spoke to Marie Thomasson, a fee-only financial planner in Los Angeles who also serves as a consultant to people working in the legal cannabis industry. [Edited for length and clarity.]
WealthManagement.com: Tell us about your background in financial services and the firm you run.
Marie Thomasson: I started out working as a fixed income analyst. I did that for about 10 years; that’s where most of my background is. I wanted to branch out because I was mostly doing institutional asset management, pension funds, that sort of thing, and I really enjoy working with individuals.
Ultimately, I ended up where I am now with my firm, Modern Assets. I started the firm at the beginning of the year.
I was looking for consulting work while getting my license, and an acquaintance of mine said, “Well, you know, I have cash problems.” It was a completely foreign industry to me from a financial planning perspective. I started doing a ton of research; it’s a little bit different than the average individual’s needs and concerns, and it’s fun.
I originally intended to take him on as a client and realized that I couldn’t. Despite being legal at a certain level, it’s still restricted at the federal and international levels.
WM: So you keep your consulting work with the legal cannabis industry separate from your financial planning business?
MT: Completely separate. I do not put myself out as a financial advisor when meeting with people in the cannabis industry. I am strictly a consultant. I even use separate banks.
There are plenty of people I know in the business who actually go under a pseudonym. I think that is out of an abundance of caution.
WM: What is the work you do with the legal cannabis industry?
MT: Setting up the business entities themselves is a huge challenge—finding accountants who can deal with these types of clients. Getting all of these pieces working together because you need people who have that type of experience and knowledge. Moreover, because everyone is dealing in cash, there are things that you need to think about as far as security, armored vehicles, and how to pay the taxes. All of these small nuances add up,
My primary role is doing financial models and projections, whether it’s for a cultivator or somebody who is building up a facility [for] real estate. One client I worked with, he’s an architect, and he wants to develop cultivation facilities. How does he go about doing that? Who does he need to speak to? Where I come in is in the modeling of the businesses and the cash flow.
WM: Are you recommending your financial planning clients put some of their portfolio in legal cannabis investments?
MT: I have not actually had any [clients] ask me to. That would put me in jeopardy as far as banking regulations go.
If you’re going to invest in something like an ETF, you have to understand that it’s really, truly a crapshoot. It’s such an emerging industry. Probably 10 years ago, 90 percent of the people were your stereotypical pothead. They just wanted to get high all day while they grew bud. Now you have a lot of people coming into the industry who are more professional, but less than you would imagine.
I think that the industry is not mature enough for an ETF to diversify those risks. So I would not recommend it to clients if they did ask.
Of course you have funds, mostly for accredited investors, if they want to do private placements or alternatives. That’s compelling, particularly for people who want to merge a real estate background and knowledge of the cannabis industry.
It depends on the client. The closer you are to the source, the more you have to be concerned with anti-money-laundering regulations. It’s a low-probability, but high-loss, event if it happens, particularly for financial advisors, because you could lose your license.
I would probably point people in the direction of [some] pharma companies investing in research, but not a cannabis venture fund. There are too many unknowns.
WM: How do you think things are going to change?
MT: I really think California will drive legislation. It will help model a pathway for banking.
In the next few years, regardless of who is in the administration or what Jeff Sessions thinks about cannabis, it’s moving forward. The tax revenue is just such a juicy proposition that I don’t know how city and state governments, once they start getting this revenue through the door, are going to be able to turn it down. I see it as a matter of time, and not that much time.
WM: And you think it will provide a big opportunity for financial advisors?
MT: I do. That’s why I’m there. It’s an emerging asset class. When you talk about alpha, it’s there. The profit opportunity isn’t now, it’s in two or three years.