In one article I wrote for Seeking Alpha and a follow-up a month later, I caution retail investors that fledgling, publicly traded marijuana companies are phantasmagoric. Sales are slim. Business plans are all over the board, and reliable financial information is given short shrift.
Like starveling children, young investors seem enamored with stocks with "marijuana" and "cannabis" in their names or product references. It is hard to blame them. They like the product; they understand the enormity of the underground market, and how deeply marijuana penetrates society. Several "talkbackers" to my articles took me to task for being a downer, trying to dampen the Great Colorado Pot Rush from spreading across the nation and sweeping Wall Street.
Publicly traded companies are positioning themselves for the coming legalization of recreational marijuana. For the moment, "medical marijuana" offers cover to the industry giving it gravitas.
The National Institute of Health finances research (for nearly five decades) on cannabis smoked, baked into cookies, oils, and in other forms. NIH finances university labs to discover pain relief from cancer, and therapeutic potentials of cannabis with psychiatric patients. The legalization of marijuana for recreational use is coming like a freight train. It is an ad hominem to young investors. It is akin to the boom in biomed-tech stocks begun less than a decade ago without the glitz and glitter of pot. News bureau UPI calls it a "new economy."
Colorado raised $25m in revenue through taxes, sales of licenses, and fees since January 1, 2014. The governor estimates Colorado will collect $134m in taxes and fees in the coming twelve months. Can other states be far behind with the Minnesota legislature poised to become the 22nd state legalizing medical marijuana?
Federal criminal enforcement agencies are hanging back. Instead, they are using the U. S. Securities and Exchange Commission to slow private sector growth in the name of investor protectionism. The SEC recently suspended stock trading of companies, "Wherever we (SEC) see incomplete or misleading disclosures, we act quickly to protect investors." The SEC action is correct. High (no pun intended) consumer demand is no substitute for transparency and compliance with government regulations.
The companies include:
· FusionPharm Inc. (FSPM) down two-thirds from its high.
Veteran financial analyst and reporter Dan Burrows warns investors away from all OTC marijuana stocks, especially Medical Marijuana (MJNA) trading at nine cents from a high of 48 cents; Cannabis Science (OTCQB:CBIS); CannaVest (CANV) shares, selling for $17.50 after reaching more than $200; MediSwipe (OTCPK:AGTK); and GreenGro Technologies (OTCPK:OTCPK:GRNH).
Moreover, the SEC has yet to promulgate guidelines for companies that want to grow and distribute recreational marijuana. They focus on equipment to grow and store it. They are on the edge, not wanting to miss the bus, but not wanting to be hit by it if the SEC keeps publicly traded companies from directly handling recreational marijuana.
If not yet convinced of the risks read the May 16, 2014 SEC investor alert, "Risk of Prosecution for Marijuana-Related Companies," and consider the trouble companies are having with banks. The agency threatens "marijuana-related companies may be at risk of federal, and perhaps state, criminal prosecution."
The U. S. Treasury Department issued guidance reminding these companies it is illegal under federal law to manufacture, distribute, or dispense marijuana. The SEC links the term "fraudsters" and marijuana investment industry. According to Burrows they are "a playground for pump-and-dump con artists."
Federally insured banks refuse to process credit card payments for these companies. Banks will not open checking accounts. Companies are further hamstrung having to conduct business largely in cash. Some are turning to bitcoin and other digital currencies.
Not scared off yet? Good. There are three reasons to keep a watchful eye on the industry. First, the federal government cannot long maintain its anti-marijuana policy, no matter what subterfuge it employs. Prohibition proved it is a law of nature that public will creates change.
Second, the opportunities to make money for the private and public sectors are too great to continue nonsensical stewpots of opposition. Like Mark Hanna says, "There are two things important in politics. The first is money, and I can't remember what the second one is." If an investor has risk allocated funds, I recommend considering investing in one or two companies.
Third, a new generation is taking public office having grown up smoking pot and in a culture of acceptance. Like Dr. Seuss says, stay ready and alert for change, because "If things start happening, don't worry, don't stew, just go right along and you'll start happening too." Only invest money in recreational marijuana stocks you can afford to lose.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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