The cannabis retailer from Vancouver makes a strong pitch to a group of wealthy investors for capital to expand his budding business.

Charts highlight solid growth and healthy sales projections in what is expected to be a booming market. Upscale stores will be designed to appeal to baby boomers and younger consumers with high disposable incomes. We could be looking at a pot version of Starbucks in the making.

There is only one minor sticking point not mentioned to the more than 200 investors and industry participants eager to make connections at a recent cannabis investment forum in Toronto. Independent retail stores are illicit everywhere in Canada. And it might remain that way even after Ottawa legalizes recreational marijuana next July. Each province will determine how and where the stuff can be sold.

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Welcome to one of the many pitfalls awaiting those tempted to leap into the biggest horticultural investing craze since the Dutch went wild over tulips in the 1630s.

The industry faces a raft of stiff regulatory and financial hurdles even where it's operating legally. U.S. federal prohibition makes it hard to get normal banking services and impossible to ship products across state lines. Big investment banks, large private equity and venture capital funds and major U.S. stock exchanges have all steered clear, making liquidity and credit lines hard to come by.

It's not for the faint of heart or those in search of quick returns. A big chunk of the capital invested in the flood of cannabis-related startups is certain to go down the drain, and it could take years to wring real value out of the survivors.

"There's no doubt the risk appetite has to be high, and you have to view yourself as an early pioneer and believe in the movement – beside the economic upside," says Jeanne Sullivan, a New York venture capitalist and veteran tech investor who has focused on cannabis businesses for the past several years.

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"It's not a game for the timid. You really have to know what you're doing or you will be skinned."

But unlike the tulip mania that ultimately devastated Dutch commerce, marijuana is already a multibillion-dollar business and poised to grow much larger.

Legal pot sales in Canada will hit $3.65-billion (U.S.) by 2021, up from $1.07-billion for medicinal marijuana this year, according to the latest projections from BDS Analytics, a cannabis specialist based in Boulder, Colo.

Consumer spending on legal cannabis products across North America reached $6.7-billion last year, up 30 per cent from the previous year. And it's expected to soar to nearly $23-billion in 2021 – about $15-billion of it for recreational use – as more U.S. states defy the federal ban to tap into this lucrative new source of tax revenue.

So it's not surprising that high-net-worth investors are pumping hundreds of millions into a slew of pot-related ventures ranging from cultivators, marketers and product developers (cannabis beer anyone?) to software designers, science labs, fintech providers and data miners.

Arcview Group, the California-based company that organized the Toronto gathering, runs a cannabis investor network that numbers more than 600 members who have forked out more than $125-million for stakes in 157 companies.

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"The odds are not good for an early-stage business," Arcview chief executive officer Troy Dayton reminds the crowd before a single pitch has been lobbed their way. His advice is "to take a few deep breaths" before taking the plunge.

Ms. Sullivan and other investors compare the current situation with the early stages of the Internet stock bubble in the 1990s. But most of the dot-com entrants had no clear idea of what would work or how to make money from it.

Cannabis already has a large and growing customer base. "I don't think some of the investments in this space carry with them the same concerns of market uncertainty that those initial … tech investments carried," says Matt Shalhoub, managing director of Toronto-based Green Acre Capital.

The way for investors to improve their odds, the pros say, is to do extensive homework, team up with other experienced investors and spread their dollars among several companies operating in different parts of the supply chain.

Right now, the main publicly traded vehicles are the licensed plant growers. But unless they expand into other more valuable parts of the business, cultivators won't be the ones reaping the big gains down the road as production rises and prices fall. "Pot isn't much different from growing parsley," one investor tells me. "You don't really care who grows it. At the end of the day, it's going to be about branding."

For the high-net-worth investor, the real opportunity lies in smaller companies operating elsewhere on the food chain. "It's the person that's selling the farmer the equipment, that's wholesaling and distributing the product, that's processing it into other valuable products, that's branding and retailing those products," Mr. Shalhoub says.

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When Arcview started out in 2010, such pickings were slim.

"We were shaking the bushes to find meaningful companies that could provide potential returns in a market that was transitioning from prohibition to legal," says John Downs, director of business development.

Today, 40 to 50 companies approach Arcview in a typical week. "We whittle that down to just the top 1 per cent that are then able to ultimately pitch our investor members."

One of the key attractions is the prospect of consolidation and eventual takeovers of leading cannabis players by Big Pharma and Big Tobacco, as well as the inevitable arrival of Big Finance.

Mr. Shalhoub says he wouldn't be surprised to see one of the tobacco heavyweights snap up a large Canadian producer in the next year and two and tap its experience to tackle other markets as they open.

In Canada, "there's a very clear path to liquidity in a lot of investments which we're making."

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Green Acre has raised more than its initial target of $20-million (Canadian) from high-net-worth investors so far this year to take stakes in 12 to 15 companies. The fund, which requires a minimum investment of $100,000, will remain open until the end of August.

In this particular gold rush, the fund is focusing mainly "on the picks and shovels and ancillary businesses," Mr. Shalhoub says.

Green Acre sees these suppliers of specialized tracking software, labs and other services growing faster than the broader cannabis market, with bigger margins that will lead to "more attractive exits," he says.

Several years ago, the burgeoning medical marijuana field began attracting slick promoters, speculators and wheeler-dealers with schemes to part unsuspecting investors from their cash. Is that era now behind us?

"No, I think that's going to continue for a while," Mr. Shalhoub says, laughing. "If anything, I think you'll see more and more of that because of the wealth that's being created."