With marijuana now legal for medical use in 20 states (and our nation's capital, Washington DC) and for anyone in two (thank you Colorado and Washington), cannabis is bursting onto the mainstream like never before. Of course there are many ways to benefit from this surge in acceptance. For many non-users, their wallets getting fatter will be the best way to benefit from the increasing demand for marijuana legislation reform. The most accessible way to do this would be through the classic American method--the stock market.
There are quite a few marijuana related stocks that are currently being traded on the open market. A vast majority of these stocks are traded "over the counter" on what is known as the "pink sheets". This is the first risk that cannabis investors take.
The other big risk, obviously, is that federally, marijuana is illegal. Doomsday scenarios for the marijuana market involve a federal crackdown on states that have progressively created this market, and Feds attempt to bully its way into the federal position in those states. As more and more states rise up and create a legal marijuana market and more of the country sees that marijuana is a cure, not a crime, however, it seems as though the stakes for such maneuvering are high. The backlash that would ensue over state vs federal rights would be political suicide for any such politician. And since these stocks are traded on the legal market, the fear of federal seizure of these stocks is minimal.
The truth is, these cannabis stocks can be seen as a lifestyle stock, ala the other "green" sector, environmental stocks. There are superstars in this industry, such as Tesla Motors (TSLA), as well as emerging companies such as Plug Power (PLUG, whose ups and downs mirror those in the cannabis index). Cannabis is no different. The consumer is a growing base, and as more companies announce their expansion into the marijuana industry, the index grows. .
Many of those investing in the market (including this writer) are users that are used to greater risk than a few thousand dollars of legal money in their economic future. The cannabis consumer has believed in this product enough to risk their freedom from incarceration because they believe in the product that much. Now that is a dedicated customer. Cannabis consumers and investors alike share in the desire to see these stocks rise. As these stocks become more mainstream, the acceptance of the fact that cannabis is here to stay will proliferate. The cannabis sector will mirror other industry sectors--well run companies will emerge, while others with less quality will cease to exist. With this, policy will no doubt follow the money, and legalization can occur. As more of America profits from cannabis, the closer the country gets to legislation reform. By putting some money in cannabis stocks, investors can not only push the country towards marijuana legalization, but profit greatly in the process.
5 Cautions on the Marijuana Stocks Market
1. Financials are not nearly as accessible or regulated as market stocks.
2. Information about these companies is hard to find. It makes investing much harder.
3. Don't wear shoes while looking at your watch list--you WILL be kicking yourself about several that you didn't buy as they rise exponentially in value. Stocks that malinger for months will suddenly explode for a short period of time and drop just as quickly. Any breaking news on legislation reform will usually come with a bottle rocket rise in value, allowing heavy profits. Some will lag, though, and you will sell out of a stock early, just to see it explode from $15 to $37 with you on the sidelines (thanks OTCQB:CANN).
4. You have to find an investment broker that does not charge exorbitant fees for trading OTC stocks. My first $2000 made in cannabis stocks came while trading with Sharebuilder. This profit was made with despite being charged up to $70 for broker fees. The reason for this was the broker's "low priced security surcharge", which totals $.007 per share. In attempting to get out of this brokerage firm, I left lots of money on the table in the form of brokerage fees. I now use TD Ameritrade, which charges a flat fee of $9.99/trade (and gave me two months of free trading, which helps a lot when dealing with sub-dollar stocks.
5. There is a risk of insider trading unparalleled in the major markets. The low cost of shares and invites these trades and bears paying attention to. This is one of the largest perceived risks involved in trading OTC stocks. As noted earlier, the combination of low
Disclosure: I am long MJNA, HEMP, NVLX, CBIS, ERBB, FFFC, OSLH, REVI.