It is no secret that marijuana is a big industry and there is lots of money to be made. Current marijuana sales are estimated to be in the region of $50 Billion when black market sales are included. This is quite a large figure, and given that the vast majority of this number is generated by black market sales, the majority of the $50 Billion is soon going to be transferred to legitimate businesses. Because the black market is not going to be sustainable in states where medical and recreational marijuana is legal. The marijuana is too easy to obtain and usually too cheap to make black markets sales profitable.
How to Invest in Marijuana Companies
The question is how to profit from the booming marijuana industry. Investing in equities always carries some risk, as do all investments. However, there are a number of publicly traded marijuana companies which can be invested in without breaking any laws. There are even consultancy firms, such as MIPR holdings, who focus on directing investors towards appropriate allocations in the marijuana industry.
There are a number of marijuana penny stock companies which you can purchase over the counter (OTC). They are quite cheap but very volatile. They may shoot up very high but will most likely be worth nothing, as is the case with investing in the penny stock region of equities. There is always a big risk with penny stocks. A lot of the pure marijuana companies are starting of right now as penny stocks, and it is very hard to pinpoint which of these will be successful due to the lack of information.
You can invest in a publicly traded marijuana company the same way you would invest in any company. The information is public and you can look at their balance sheet, income statement, shareholder equity and get all the available data. You can call the Chambers of Commerce to make sure they are a legitimate company. Check the Securities and Exchange Commission to make sure that the company has filings with SEC. It is a good idea to review stocks listed on the MJIC Marijuana Index. These companies all have at least 50% involvement in cannabis and have to adhere to certain rules and requirements.
The best and safest way to invest in marijuana is actually by investing in ancillary businesses. Some ancillary businesses will go up even more than the price of pure marijuana companies. An example of this could be that by investing in a company that sells vaporizers, its stock might go up further than that of marijuana growing companies. While it is still possible for people to go to jail for the sale of cannabis, this is not the case for ancillary businesses that sell marijuana containers, marijuana cultivation products, packaging and marketing services. These companies will have established histories and are much safer, as the legislation is clearer and has been around for a long time. Biotech companies such as GW Pharmaceuticals, Insys Therapeutics and Zynerba are listed on larger stock exchanges such as the NYSE and Nasdaq and are quite reputable while not being pure weed companies.
Invest Intelligently
Legal cannabis consumption in California is estimated to be a $5 Billion business, and local counties and businesses are getting everything into place to be ready when the deadline for the sale of recreational marijuana becomes official in January 2018. But California is in a very real danger of having too much cannabis. The figures vary, with some saying that California has 8 times more cannabis in supply than is currently being consumed. Other figures say that the multiplier is as high as 12.
The takeaway is that if you are going to invest in cannabis companies, be very careful in what company you invest and in what area. Even if you invest in a solid company, if there is 8 times too much cannabis in the area then it will be very difficult to make a large profit. And likewise, if you invest in an area where marijuana is set to be legalized with low supply and huge demand, it might not be successful if the underlying company fundamentals are not correct.
It is not quite as simple as getting the money into a growing industry and watching the stock rise. Various counties within states have multiple rules and regulation which differ greatly. Some regulations are very restrictive and make it far more difficult for companies to make a profit. An example of this is that in California it is free to apply for a license to grow weed and it takes around 2 weeks. In Pennsylvania, permits to grow marijuana are $200,000 and only 25 of these are being handed out. Saying this, an investment in a company that successfully applies for one of these permits might be profitable, as it would have a monopoly on the market due to the limited number of permits issued.
Marijuana is Illegal.
Always remember, though cannabis is set to be a booming industry, there are many associated risks. Not only are there the classical risks associated with investing, but also the fact that weed is currently a Schedule 1 drug illegal at the federal level. There is nothing stopping the federal government from shutting down any marijuana company, public or private, on the basis that it is an illegal activity. President Trump has reserved the right to do so.
