Still considered a controlled substance in many parts of the world, marijuana (also known as weed, cannabis, pot, ganja, reefer, grass, Mary Jane, etc.) makes up a hefty proportion of the world’s illegal drug trafficking industry. In the latest Global Drug Survey, 63.14% of respondents admitted to partaking in a bit of weed in the last 12 months. That’s 3% more than those who smoked cigarettes, and 7% more than those who consumed caffeinated energy drinks.
(Image source: marijuanaindex.com)
Thanks to the growing number of countries and the United States that have legalised the use of marijuana, companies that are involved with the production and use of the drug are on a metaphorical and literal high. Two marijuana-based companies to note, GW Pharmaceuticals and Canopy Growth Corporation, are capped at US$3 billion and US$1 billion respectively. The surge in popularity for marijuana-based company stock has led to the creation of multiple websites and portals dedicated to observing the share prices of this budding industry. Want to get in on the action? Here are a few things to look out for before you jump into the hot box of marijuana-based stocks.
- Local Marijuana Laws & Regulations
There isn’t a lot of information on the legality of investing in companies that produce or sell weed, and it is advisable to proceed with caution when making such investments. Unless explicitly stated, you should always believe that investing in marijuana is deemed illegal in your home country. The safest way to approach this is to invest in companies that supplement the main business of selling weed. An article by CNBC quoted the founder of New Frontier Financials, Rick Gilchrist, advising you to invest in weed-related companies that engage in businesses that would otherwise be completely legal on its own. This may include hydroponics technology, harvesting equipment, or even medical packaging.
For those who are a little more adventurous, another option is to invest through accredited investment firms or brokers who will handle all the administrative red tape and legal negotiations. A couple of examples include MMJ Invest and The Arcview Group.
- Risky Business
The marijuana industry is semi-legal, and new laws are being passed every other day. Couple this with the new Trump administration in the US and marijuana-based companies face the risk of termination if a new regulation is introduced, denouncing their business as an illegal one. Laws that dictate areas of conducting business, operating hours, and methods of sale are some of the reasons why some of these companies are shutting its doors.
If you are looking to invest in a company that deals with weed, make sure you learn about the company and how they operate. This will help you predict their ability to weather through regulatory changes so that your investment won’t end up in smoke.
- Fragmented Industry
Big Pharma is still keeping a safe distance from weed, in fear of regulatory backlash and restrictions on their thriving businesses. This opens up the industry to a vast number of small players that are listed as penny stocks. These small companies face difficulty in financing businesses, as banks are wary of lending them money in fear of being accused for laundering money for illegal drug peddlers. As such, profits and revenue may be low, and it is important to weed out legitimate marijuana companies from the flurry of suspicious businesses. The competition is stiff, and if you’ve placed your bets wisely, you could be reaping phenomenal returns.
Looking to get a hit of this sweet, sticky joint? There’s a slew of online information on the progress and performance of marijuana-based stocks – the most prevalent one being The Marijuana Index. Before you jump headfirst into the world of weed, read up on your local regulations on marijuana and most importantly, don’t break the law!