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In a recent article we posed the argument that the marijuana industry may be the next big growth sector. There is little disagreement that it is possible. But what remains in question is if it is probable, and if so, what companies will capitalize on the growth of the industry.

We received many great comments and questions from clients and friends, and our hits were never higher, reinforcing the implied interest in this topic and potential growth industry. So this definitely requires further high level research. Here we'll dig into more in-depth specific stock research as well as provide some specific trade strategies to get your portfolio to its highs.

The unfortunate overvaluations

We believe that many of the so-called pot stocks have already received an inflated price due to investors flocking into them with the small hope they might be the next Google (NASDAQ:GOOG) of the marijuana industry. These include Medbox (OTCQB:MDBX) and AVTC (OTCPK:AVTC). Since a lot of hope and hype may be priced into these stocks, they should be traded with caution. That isn't a sell recommendation, that's simply noting that they are already so overvalued that it would take a major event to take them significantly higher.

What many are seeking in this new market is the opportunities such as was experienced with Medbox, which went from around $2 to over $200 at its peak. And unfortunately, that will likely only come from small upstarts, not from Big Tobacco, Big Pharma, or Big Ag. So the chance of having a pot-fueled lottery ticket maybe just that, guessing which micro-cap might be the next Google of the marijuana industry. Evaluations of the companies are difficult as they are all fragile, compared to established blue chips. So for a moment let's take a step back and evaluate some other potential players.

The Big M

In further research, we still think that Big Tobacco - Altria (NYSE:MO), Reynolds (NYSE:RAI), Lorillard (NYSE:LO), and Phillip Morris International (NYSE:PM) - may be best poised to capitalize on a marijuana boom on the consumer level (being in growing, distribution, and marketing), but in our last article we didn't consider the role Monsanto (NYSE:MON) would likely play. Other agriculture related companies in any part of agriculture could become growers, but Monsanto has a unique relationship with the agri-business. It has thousands of patents on genetically modified crops, seeds, pesticides, and other chemicals that are so aggressive, the seeds will drift into a farmer's field via the wind and they will subsequently be sued by Monsanto. Monsanto has power in Washington, and we should mention a sitting Supreme Court Judge, Clarence Thomas, was an attorney for Monstanto.

We need to take a step back and see things from a high-level perspective.

First, consider how powerful this company is. These are the people who gave us Agent Orange, PCBs, Bovine Growth Hormone, and tried to patent the genetic makeup of the pig. They are likely working on a plethora of pot enhancing chemicals right now, either for users or for growers. Their herbicide Round Up is the most used weed and pest killer of its kind in the world; Monsanto patented the glyphosate molecule in the early 1970s.

Second, consider the forces of the alleged illegalization of Marijuana in the first place, supposedly by big industry including DuPont. DuPont, ironically, does a lot of business with Monsanto . If Monstanto isn't the main player here, it's likely they will be involved.

However this poses a challenge for investors. While companies such as Monstanto may make billions on such a market, it wouldn't give us the $2 to $200 move we saw on Medbox (OTCQB:MDBX), thus posing the challenge.

If pot investors want a really high return, we'll have to stick with some of the micro-caps and roll the dice, as analyzing any of them the same way we might analyze a Google or an Apple (NASDAQ:AAPL) isn't appropriate.

Long shot portfolio

One strategy then is to collect a list of micro-caps and small-caps in the cannabis-specific market and buy a small amount of shares in each. Be willing to risk losing in each, especially on those like Medbox (OTCQB:MDBX) that have already had some upward movement.

Here's the pot portfolio list:

Why is it a long shot? Just in the last few days, Medical Marijuana is down 20%. Today, Tranzbyte is up 7%. They can be subject to big swings as there's a lot of hype and emotion in these micro-caps.

Our suggestion would be to go long a small portion in the entire portfolio. We have left out some companies in related industries such as Converted Organics (Pending:COIN) because they aren't directly related to the marijuana industry, although they might benefit.

Time risk

The biggest risk with this portfolio is that it will take time for the situation to develop to the point that new events may trigger price spikes. During that time, we are always one bad event away from a negative portfolio impact. We will look into some options related strategies to balance this effect. There isn't really any solution for this risk, because you want to be in the stock before a big news event, it's impossible to know when the next big news event will come.

Cultural Acceptance

In a recent poll, the majority of Americans already support states' rights on the issue, that Feds shoudn't get involved in legal adult users in states that have legalized. A former Microsoft executive is launching his own high-end niche pot business. It seems that more and more Americans are accepting this new industry, not just the fringe.

Source: Current Values Of Pot Stocks Too High? Let's Build A Pot Portfolio