Ask Pot Guide v.8: Marijuana Stocks

The cannabis industry is growing rapidly. According to the ArcView Research Group, marijuana could be an estimated $10.8 billion dollar industry by 2019 and many investors are eager to grab their piece of the pie while it's still hot.

Of course, given current federal restrictions on cannabis, investing in this particular industry involves more risks than a dip in stock prices; the whole industry could be shut down should a more conservative president take office in 2017.

So which is it? Is now a good time to invest in marijuana stocks or is it best to wait until after the 2016 elections? We’ll look at these questions and more on this week’s Ask Pot Guide.

Should I invest in marijuana stocks?

User from Denver, CO

Because marijuana is such a young industry, most companies will only have stocks available for over-the-counter trade. Though this can be good in terms of stock prices, it poses a greater financial risk in that OTC stocks are less regulated and thus more susceptible to failure or fraud.

It is also important to remember how unpredictable federal marijuana legislation is at this point. Though many states throughout the nation are on track to legalize marijuana (either medically or recreationally), a new president could reverse the process by insisting that the attorney general enforce federal prohibition laws. If this happens, any money invested in the industry could be lost.

Nevertheless, there are certain cannabis-related stocks that could prove hugely profitable for investors willing to take the risk. Especially appealing are investments in marijuana testing facilities as more and more legislators begin noting the importance of accurate dosages and contaminant-free products.

Also of interest are vaporizer companies, especially those that sell both nicotine and cannabis cartridges. Stocks in these companies will likely prove fruitful no matter what direction federal marijuana legislation takes given their growing popularity and appeal to health-conscious individuals. As it stands, vaporizers and “e-cigs” net about $1.7 annually worldwide with sales numbers on the rise.

Finally, hemp (marijuana’s slightly less popular but still very attractive cousin) is an excellent investment for anyone concerned with future legislative restrictions on marijuana. Because hemp is distinct from marijuana (in that it contains less than 0.3 percent of the psychoactive cannabinoid, THC), it can be legally cultivated in 22 states or imported and used throughout the nation.

For many investors, the safest options are not always the most appealing. After all, there is a lot of truth in the phrase “with great risk comes great reward”. For those who would like to put their money into newer (and potentially more prosperous) cannabis companies, there are ways to reduce the risk associated with start-up investments.

• Attend cannabis business summits: Investors in the marijuana industry have a unique opportunity to learn about the latest companies and products -- and meet the people at the core of each -- by attending local business summits. Events like the National Cannabis Summit Conference and Exhibition serve to educate entrepreneurs and connect them with investors eager to get in on the ground floor.

• Research products and companies: After discovering some of the latest and greatest cannabis businesses to invest in, investors should narrow down the list by researching individual companies. Things to look for include the company’s financial history, Price-Earnings ratio, growth potential, company values and product quality.

• Research similar companies: One of the easiest ways to see that investments will be fruitful is to look at the way similar companies compare. If the intended investment has less earning potential and room for growth than another company, for example, the former may not be the best investment after all. For any investment to pay off, it has to be the best of the best, and comparing earnings reports can help determine which company this is.

There’s no doubt about it; the cannabis industry is growing quickly – and earning heaps of money in the process. For those who see marijuana as an investment opportunity, it’s important to remember that, despite its huge potential, the cannabis industry is very volatile. Before investing in any company, carefully consider if it's worth the risk.

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