Illustration by Sam Woolley /GMG
In the past few years, legal weed—or excuse me, cannabis—has become a $9.7 billion dollar industry, and is expected to reach nearly $25 billion by 2021. Marijuana is now legal in eight states plus the District of Columbia for recreational use, and 29 states plus DC for medicinal use. The Cannabis Stock Index (yes, that exists) rose 88.8 percent in 2016 and 91.8 percent in 2017.
And whether it’s to support the cause, make some money, or both, many of us now want to put our money where our Mary Jane is. Below, what to know if you’re looking to add some greenery to your investment portfolio.
How Can Investing in Weed Be Legal?
For many American investors, their dollars actually travel north of the border—where marijuana will be completely legal by July. “In Canada, there are several licensed producers that trade on the Toronto Stock Exchange (TSE),” said Alan J. Brochstein, a certified financial analyst and founder of 420 Investor and New Cannabis Ventures. “This is a sign of the maturation of the industry there.”
In the U.S., most of the companies you can invest in are “ancillary,” meaning they don’t touch the plant. One example? Kush Bottles, which makes packaging. “They don’t have to grow weed or deal with massive overhead or federal crackdown,” explained Jason Spatafora of MarijuanaStocks.com. “They just have to make baggies.” Other ancillary companies make vaporizers, irrigation lines, or software; even Scotts Miracle Gro, according to Spatafora, is “a marijuana stock at this point.”
The other major industry is biotech: companies like GW Pharmaceuticals, Cara Therapeutics, AbbVie, Zynerba, and Insys Therapeutics, which are using endocannabinoids to treat conditions like epilepsy and cancer pain. Though these are among the most promising companies for investors, just be aware of what, exactly, you’re supporting. Insys, for example, has lobbied against marijuana legalization—which might conflict with your beliefs and investment strategy—and Canadian company Emblem showcases the fact its president was responsible for the launch of Oxycontin.
What to Know About Pot Stocks
If you want to invest in Canadian or American cannabis companies, you have two options: penny stocks on over-the-counter exchanges, or regular stocks on major exchanges like the TSE, NASDAQ, and NYSE. Both kinds can be purchased through online brokerages like Fidelity and Ameritrade.
Penny stocks may be cheap, but they’re also risky. “These stocks are very volatile and sometimes don’t have a lot of people investing in them, so the liquidity—lots of buyers and sellers—can cause wild swings in prices,” explained Debra Borchardt, the CEO and editor-in-chief of Green Market Report.
When Spatafora, who’s known as the “Wolf of Weed Street” because of his affinity for penny stocks, first started investing in 2013, he experienced this firsthand. “I’d never bought a penny stock before,” he said. “I bought 10,000 shares for $500. Two days later, the stock went up 50 percent; two days after that, the stock tanked.”
In addition to the volatility, you should note that penny stocks don’t face the same reporting requirements traditional stocks do. Unknowing investors could become the victim of pump and dump schemes, so it’s imperative you do your research. Read what experts say about the company, search Twitter with “$” plus the ticker symbol, track revenues, and ensure the founders have never been accused of fraud.
Is There a Weed Mutual Fund?
No, but there are two exchange traded funds (ETFs): Horizons Marijuana Life Sciences ETF (HMMJ) and Alternative Harvest ETF (MJX). Of the two, both Borchardt and Brochstein recommended the former.
Traded on the TSE, HMMJ holds shares from more than 25 companies and is up 121 percent since its inception in April 2017. That being said, the vast majority of its exposure is Canadian, which Brochstein of New Cannabis Ventures noted is “a very narrow universe.”
“I think it makes sense only for people who aren’t comfortable picking a few stocks from that group, or who have limited funds and are unable to diversify due to commission costs,” he said. “For those looking for exposure to the U.S. market, there aren’t any ETF options.”
Alternative Ways to Invest
Though stocks are the easiest way to invest in the marijuana industry, accredited investors—those who have more than $1 million in assets (excluding their home), or earn more than $200,000 per year—can also support private companies directly.
One way to connect with entrepreneurs is through The Arcview Group, a cannabis investment network that vets and curates the companies it presents to 600+ member investors each week. Arcview success stories include Mirth Provisions, which creates cannabis-infused beverages, and Eaze, a marijuana delivery platform.
“Never before have we seen a multibillion industry, with a 30 percent compound annual growth rate, where federal law forces the big boys to sit on the sidelines,” said William Petruski, Arcview’s vice president of sales. “The opportunity for private investors to get involved and see returns—it’s not that different than the idea of joining an IT investment network 30 years ago.”
Wait… But Isn’t Now a Scary Time to Jump In?
On January 4, Attorney General Jeff Sessions rescinded an Obama-era memo that allowed states, for the most part, to determine their own policies for prosecuting marijuana crimes. Though no one’s sure what will happen next, experts say that doesn’t mean it’s a bad time to invest. (Remember that the most legitimate investment opportunities at the moment are in Canada, anyway.)
While Brochstein said he’s become more cautious in his investments, and has advised his subscribers to limit their exposure, others feel differently. “I think now is actually a good time to invest because the stock prices took a tumble,” said the Green Market Report’s Borchardt. “The states are fighting back, and I believe the stock prices will resume climbing as other people gain comfort in the level of risk they’re taking. The best investors buy when others are scared.”
And Arcview’s Petruski, who believes that legalization will happen “sooner than we think,” called it “one of those scenarios that gives a nervous investor an excuse to stay on the sidelines.” For “those who are bold and realize we’re on a path that’s nearly impossible to turn around, it’s an investor’s opportunity,” he said. “You’re never going to see better deals than you do today.”
What to Do Before You Invest in Cannabis
Cannabis is undoubtedly an exciting investment opportunity. But, as with anything, you should do your research first. Make sure you thoroughly vet any potential companies, and stay on top of what’s occurring legislation-wise. Start by “paper trading”—writing down what and when you’d buy and sell, and seeing how you do.
“The amount of information out there is overwhelming—as is the amount of misinformation,” said Petruski. “In any investment strategy, information is king. And in this vertical, more so than any other.”
No matter when and how you decide to dive into this booming industry, just remember Brochstein’s fitting advice: “Treat cannabis investing like edibles: Start low and go slow.”
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