pot

Is It Finally Time to Invest in Marijuana Stocks?

Brittany Lyte — Fri, 09 Jun 2017 08:30:08 +0000

Politics aside, there's a lot of green to be made in the burgeoning legal marijuana market. As more states move toward legalization, the potential to profit grows higher and higher. But in many cases, it's still just potential.

While the industry is worth watching for investment opportunities, there are also some very real downsides to investing in cannabis right now. Read on for our roundup of the pros and cons of investing in weed.

Cannabis industry growth is soaring

According to cannabis research group ArcView, legal marijuana sales in North America increased by 34 percent to $6.9 billion in 2016. A prediction from investment firm Cowen & Co. puts the U.S. market at $50 billion by 2026. More than half of all U.S. states have already legalized the use of medical marijuana, while eight states and counting have legalized recreational use for adults.

Another triumph is the story of cannabinoid group GW Pharmaceuticals, whose stock has skyrocketed nearly 1,300 percent in value in less than four years. What's more, a growing percentage of Americans are supportive of marijuana legalization. Public support for legal cannabis has grown to 60 percent, according to a 2016 poll by Gallup. All of this makes for fertile grounds for further cannabis industry growth.

Marijuana could become the next dot-com bubble

When it comes to cannabis stocks, Canada is leading the scene. Unburdened by the depth of opposition that recreational marijuana has raised from the U.S. Attorney General and many in the U.S. Republican party, Horizons Medical Marijuana Life Sciences ETF — one of the first cannabis ETFs in North America — started trading on the Toronto Stock Exchange in April, almost instantly becoming one of the month's most popular funds. Propelling the marijuana ETF toward further success is a rise in investor enthusiasm sparked by the legislation recently introduced by Prime Minister Justin Trudeau to legalize cannabis across Canada. (The plan is expected to pass.)

For a new fund, this level of accomplishment is rare. But experts caution that the marijuana market remains dicey. Canada's landmark marijuana ETF has 14 members, some of which include drug companies whose profits largely draw from sources outside marijuana research. Add to that a 0.75 percent management fee — higher than the norm. The bottom line is Canada's marijuana stocks are still largely speculative, so investors should be cautious.

Marijuana businesses are hampered by a cash-only economy

Marijuana businesses are completely shut out of traditional financial services, which means the industry is forced to operate in a cash-only environment. Banks and credit card companies have largely been unwilling to work with cannabis firms, even in states where marijuana use is legal, because federal law still prohibits them from taking marijuana money.

Whenever a business is forced to deal in cash, there are security risks that its stockholders inevitably have to shoulder. Working in a cash economy, for example, means that a business is more susceptible to robbery or employee theft. It's also a growth inhibitor.

Penny stocks still dominate the cannabis trade

Most marijuana stocks on the market are penny stocks. Translation: They're pretty much one big gamble. With a share price of $5 or less, these stocks are unpredictable, and getting accurate and timely financial stats about them can be difficult. Of course, even a penny stock can experience explosive gains. But at this point, experts say it's little more than a coin toss.

Despite impressive growth, most marijuana stocks are losing money

What do most marijuana stocks have in common? They are losing money. Just two cannabis companies in operation can claim a positive EBITDA (earnings before interest, taxes, depreciation, and amortization), which is an operating performance-focused metric commonly used by investors to guide their investment decisions.

Those companies are the Ontario-based Canopy Growth Corp. and Aphria. As for GW Pharmaceuticals and all the others? Shut out from traditional banking and tax deductions, they are operating in a completely experimental world where they're left to learn as they go.

Don't go chasing unicorns

Experts warn that some marijuana companies are little more than a sham. Without a sound business plan, they are roping investors in based on an idea rather than substance or experience to put that idea into action. Don't get roped in. Be skeptical and do your homework. If a company or investment opportunity appears too good to be true, it probably is.

Marijuana news websites that only praise a company, for example, might be getting paid to do so. "Check financial websites like Yahoo Finance to see if management is selling any of their shares," Barry Clark, CEO at cannabis company FlowerKist, recently told Forbes. "If they believe in the company, they won't be selling their shares."

This article is from Brittany Lyte of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Ways to Profit From Legal Marijuana

Brittany Lyte — Thu, 16 Jul 2015 11:00:12 +0000

Legal marijuana raked in $700 million for the state of Colorado last year. By 2016, it's expected to flourish into a billion dollar business. That doesn't even begin to scratch the surface, though, since bong and pipes sales and tourist spending at hotels and restaurants are absent from that figure. And as marijuana is legalized in more states and jurisdictions, the opportunity to profit will only grow.

So how can you capitalize on weed?

1. Land Bank Prime Tracts of Farmland

Marijuana doesn't grow on trees. It grows in the ground, and as the legal weed business blossoms, growers will be looking for real estate on which to sow their seeds. Tennessee, Kentucky, Virginia, and the Carolinas are popular states for tobacco growers. If you're in a position to increase your land holdings, you might want to consider investing in farmland in one of these states, since experts say it's likely many weed growers will look to former tobacco farms for their land holdings. California's another good bet. As weed growers look to expand their acreage, the value of land for growing operations is expected to soar.

2. Invest in Marijuana Stocks

In 2014, publically traded marijuana companies experienced double digit gains. That's a good indication that the time is right to invest your green in the weed industry. The ArcView Group, a cannabis industry investment and research firm, predicts a 33% rise in marijuana sales this year — from $2.7 billion in 2014 to $3.5 billion in 2015. The potential for future growth is huge. "Big tobacco, big pharma, even big agriculture companies are starting to kick the tires to see where the opportunities are," said Chris Walsh, managing editor of Marijuana Business Daily. "If full legalization happens, you'll see a surge of companies from other industries get involved."

3. Land a Job in the Cannabis Industry

There are an estimated 7,500 to 10,000 marijuana industry jobs right now in Colorado — it's the fastest growing industry in the state. This rapid growth is generating hundreds of new jobs a year. In addition to weed trimming and store clerk gigs, there are managerial roles, information science opportunities, and event promotion jobs. You can easily peruse the opportunities at 420 Careers. Working in the weed business may be more highbrow than you think.

4. Become a Weed Entrepreneur

Apart from the growing and selling of marijuana, there's endless opportunity to cash in on the weed business as an entrepreneur. Legalization has sprouted a burgeoning marijuana packaging and accessories industry. Demand is high for new and innovative projects. A company named Pottles, for example, makes airtight, smell-proof pot containers. Stink Sack vends child-resistant pot packaging.

The Bureau — a self-funded start-up founded in 2012 with $60,000 and a $500,000 angel investment — sells stylish, design-driven weed packaging with features like embossed glass, treated wood, and secret compartments. Yahoo! Finance reports that the founders expect their company, which launched this year, to be profitable by the end of its first 12 months in business. "I was, and still am, surprised to see that cannabis is sold in plastic baggies, repurposed plastic pop-top containers, and other methods that more closely mirror the days where cannabis was only available on a street corner," The Bureau founder Josh Gordon says.

5. Become a Legalization Lobbyist

Michael Correia is the marijuana industry's first full-time lobbyist. He certainly won't be the last. In 1969, only 12% of the country supported the legalization of marijuana, the Washington Post reports. Last year, that number was 58%. The growing desire for legalization, coupled with the small number of places within the U.S. where the drug is legal, is creating a new niche for folks with the skill to persuade lawmakers to support America's newest industry boon. "It's really a legitimate and respected force now," says Rep. Jared Polis (D-Colo.), one of the leading voices on marijuana legalization in the House.

Have you considered a job in the pot industry? How about an investment?

This article is from Brittany Lyte of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: