Marijuana Stocks: How to Invest in Marijuana Today
April 10, 2017
By John Divine
Investment opportunities exist. But on the whole, the marijuana industry isn’t ready for prime time.
States are legalizing, decriminalizing, or allowing for the medicinal use of marijuana. And for many opportunistic investors, one question arises over and over again: How do you invest in marijuana?
As it happens, there are several ways to go about it – and it’s not so simple as calling up your broker and saying, “I’ll have some marijuana stocks, please.”
By the time it’s feasible to invest in cannabis on that level, the act of calling up a broker may not even be a thing any more.
Still, it’s worth surveying Wall Street for what, if any, upstanding marijuana stocks exist for individual investors to buy today.
The trouble with looking for marijuana stocks to buy. GW Pharmaceuticals (ticker: GWPH) is the closest thing to a legitimate U.S.-based marijuana stock. Though technically speaking, GWPH actually isn’t a marijuana stock in the sense that most people would expect.
GW Pharmaceuticals doesn’t grow or sell pot. The company is instead working on a marijuana-based epilepsy treatment called Epidiolex, which is expected to get a thumbs-up or thumbs-down from the FDA by the end of 2017.
Two of the most legitimate-looking weed stocks other than GWPH are both Canadian companies, where medical marijuana is legal: Canopy Growth Corp. and Aurora Cannabis. The competing medical marijuana suppliers north of the border have both seen their stocks roughly quadruple in price over the past year, and both currently seem to trade at exuberant valuations.
In short, this isn’t the tech sector. The market isn’t teeming with promising marijuana stocks to buy.
“There are virtually no public companies that directly touch the plant,” says Lamine Zarrad, the CEO and founder of Tokken, an app granting banking privileges to cash-intensive industries like cannabis. “The majority of companies that are publicly traded are penny stock companies.”
Penny stocks are notoriously bad investments for most individual investors, and are rife with scams, liquidity issues and transparency problems.
The fact that marijuana remains federally illegal is what relegates many marijuana stocks to these shadier corners of the market.
Companies dealing directly with marijuana not only have to worry about potential enforcement actions, but are also shunned by most banks, who want to steer clear from doing business with companies trafficking in the sale of federally illegal substances to the public.
Still, marijuana is legal (in medicinal or recreational form), in more than half of the states in the U.S. as well as the District of Columbia, and the trend is unmistakably moving toward legalization. Despite the new Trump administration taking a tougher stance on the issue than the Obama administration, industry insiders are optimistic.
“It’s been a little rocky with (Attorney General) Jeff Sessions and (President Donald) Trump, but the industry will stay strong,” says Neil Demers, CEO of Diego Pellicer – Colorado, a Denver-based upscale dispensary.
“We’ve reached a tipping point,” Demers says.
Still, while upbeat cannabis bulls may be eager to get their money in on the ground floor of a huge industry, marijuana stocks, largely speaking, just aren’t ready for prime time yet. “It’s probably wise to let some things settle – probably wise to wait until some of these companies aren’t penny stocks,” Zarrad says.
Until then, there are other ways to invest in this budding industry – outside of Wall Street.
Invest without buying stocks. It’s a good news, bad news situation. On the one hand, there are legitimate ways to invest in the marijuana industry today without buying penny stocks, compromising one’s true investment intent or taking a flier on richly priced, highly speculative stocks that might not even be profitable yet.
On the other hand, if you’re not buying stocks, the options basically boil down to becoming a local investor, small business owner or partner in a marijuana-related local business. That can be an expensive proposition, and certainly isn’t for everyone, but opportunities do exist.
Andrew Ittleman is a founder and partner at Fuerst Ittleman David & Joseph, and concentrates a good portion of his practice on marijuana-related issues on a national level.
“I don’t think there’s a one-size-fits-all approach,” Ittleman says of the do-it-yourself approach to marijuana investing.
“Stick with what you know. If you’re a real estate guy and you want to get into the cannabis space, there are plenty of opportunities for you,” Ittleman says. The principle also applies to experts in the warehousing, product and marketing fields, he says.
Of course, buying part of a local marijuana-related business still has its risks – mainly the glaring risk posed by the plant still being federally illegal. In many cases, raids, fines and charges are still within the realm of possibilities.
“But if that’s within your appetite for risk and you understand what you’re getting into, then by all means: Go for it. Because the growth trajectory that we’re on right now – it’s not always gonna be like that,” Ittleman says.
One day, the era of federal prohibition will end. What comes after that, as far as the marijuana industry is concerned, is the “billion-dollar question,” Ittleman says.
Final risks to consider. While it may not seem like there can be risks bigger than the Feds raiding your business, seizing its assets and looking for scapegoats, there is one more considerable risk involved for those considering locally investing in the marijuana industry: scammers.
“I’ve seen Ponzi schemes, I’ve seen investment fraud, I’ve seen securities fraud, I’ve seen it all,” Ittleman says. “If you wanna buy in because it’s sexy and because you like the growth and because you have the appetite for risk, you can go and buy GW Pharmaceuticals – but otherwise you gotta get out there. Meet the people.”
And try to invest in what you know.
For bold investors thinking about going the local business route, it’s always best to consult a lawyer before laying any hard cash down.
Despite its high growth and the encouraging long-term regulatory trends, when it’s all said and done, facts are still facts. And for the vast majority of investors, the marijuana industry – and even marijuana stocks – just isn’t very investable right now.