Should I Invest in Pot?

By in Advanced Investing, Stocks | 15 comments

Is Medical Marijuana the Investment of the Future?

I saw a fascinating show on television about the benefits of medical marijuana. In fact, a young girl with up to 75 seizures per day found that a form of marijuana ameliorated her symptoms. Unfortunately for her family, the marijuana derivative treatment was only available in Colorado, and this family lived in New Jersey, where marijuana is illegal. Because of the efficacy of the medical marijuana, and the lack of availability in their home state, they made the difficult decision to uproot the family and take up residence in Colorado.

The benefits of marijuana for pain, multiple sclerosis, and a host of medical ailments is exploding. What was once a method for hippies to get high in the 1960’s has turned into an exploding medical industry.

Is Investing In Pot a Way to Make Money?

How big is the marijuana playing field anyhow?

According to the NY Times, “Next Gold Rush: Legal Marijuana Feeds Entrepreneurs’ Dreams” by Jack Healy and Kirk Johnson.

“With marijuana now legal for medical use in 23 states and Washington, D.C., and full legalization heading to the ballot in Alaska and Oregon, the size of the noncriminal marijuana industry is expected to grow to about $2.6 billion this year from about $1.5 billion last year, according to estimates by the ArcView Group, a marijuana research and investment firm in San Francisco.”

Is the time ripe for the retail investor to invest in pot?

There’s a lot of discussion about ways to invest in this exploding new legal industry, yet the question remains, “Should the average investor get on the pot bandwagon now?”

should i invest in pot marijuana

First, let’s look at the how of investing in pot. 

An investor can check out individual stocks which benefit from the pot industry. Before we go any further, be warned that investing in individual stocks is much riskier than investing in a mutual fund. And, I have never recommended investing in a single stock. That said, Investor Place mentioned 5 stocks likely to profit from the marijuana boom. Invest at your own risk:

Hemp (HEMP)-This stock is a collection of companyies. In contrast with other marijuana companies, HEMP is focused on the potential of hemp as opposed to cannabis. Hemp can be used to make many products from food to paper, building products and more.

Cannabis Science (CBIS)-This company focuses on turning cannabinoids into prescription medications. Their curent focus is treating HIV/AIDS and cancer.  The treatements are currently in pre-clinical trials. This company might also be considered a biotech stock.

GW Pharmaceuticals (GWPH)-This pharmaceutical company has one product, Sativax. This drug is a cannabinoid-based medicine that treats multiple sclerosis. It is approved in several countries, but not the U.S.

Medical Marijuana (MJNA)-This firm owns a few cannabis related companies. Additionally the company recently launched the industry’s firs armored car service.

American Green (formerly Tranzbyte Corporation)(ERBB)-is traveling a different route. ERBB aspires to develop young companies and prducts, and after the firms are up and running, spin them off into their own publicly traded companies. One of it’s recent products is the ZaZZZ line of recreational marijuana vending machines. 

I put my portfolio manager hat on and did a quick check of the fundamentals of these companies. Only one company, Medical Marijuana (MJNA), had any positive earnings. The $.03 per share didn’t scream “buy” to me. With the exception of GW Pharmaceuticals, each of these stocks are penny stocks, selling for less than a dollar.

This is not the way to invest. If you want to speculate, that’s another matter. Each  of these holdings are extremely risky investments at present.

Future Pot Mutual Fund

High Times Magazine has been devoted to pot lovers for decades. Now the magazine is getting into a new venture, the High Times Growth Fund. The fund is attempting to raise $100 million over the next two years, according to  Michael Safir, the business manager of High Times, in a CNBC article by  Jeff Morganteen, “High Times Looks to Form $100M Marijuana Fund”.

Before you pull out your checkbook, this investment is for accredited investors only and expects to go with a typical private equity investing plan. The average investment is expected to be $2 million.

Thus, most retail investors are out of this fund!

Should I Invest in Pot?

Back to the question at hand. Remember the gold rush? Who got the richest during this time in history? Of course it was the people selling the equipment to the miners. If you’ve ever seen an old movie about the gold rush, you’ll notice there’s always a shop where the hopeful gold-miners go for their ropes, pics, and all the other gear they need for the endeavor. 

Could the pot industry be the same? There are companies springing up who provide security for the new marijuana shops. There’s all types of equipment nascent growers need to buy. Who manufactures that equipment?

My take is a conservative approach. I may not get in on the latest and greatest investing fads, but just like the tale of the tortoise and the hare, I’ve found that slow and steady wins the race. And regarding investing, that means taking the tried and true index fund investing approach (in line with your risk tolerance. 

If you want to take a flyer, go ahead. Just realize any time you are chasing an unproven investment, you are speculating. Don’t invest any money in risky investments that you can’t afford to lose.

Action Step

Before you invest in any asset. Do your homework.

When considering a stock investment, look at the valuation. Check debt ratios and the price earnings ratio. If those are not reasonable, walk away.

Have you ever taken an investing flyer? How did it work out?

    15 Comments

  1. Interesting post Barb! I didn’t know there were medical marijuana companies that you could invest in. Not sure I would invest at this point, i’d be afraid my money would go “up in smoke”! Couldn’t resist that one!

    Paul @ The Frugal Toad

    July 20, 2014

  2. I think the marijuana industry is set to explode. Legalization will follow the same path as gambling and lotteries. Many states resisted legalizing these “vices,” but when politicians see the bucks that Washington and Colorado are going to be raking in from their marijuana industries, they’ll find the allure of cash irresistible. In 10 years pot will be legal in most US states, I predict. Not just medical marijuana, but marijuana in general.

    Kurt @ Money Counselor

    July 20, 2014

    • Hi Kurt, I completely agree that it will ultimately be legal in all the states. The potential government revenue is great. I also think there will be opportunities for investors, but it’s a bit to speculative for my blood at this point.

      Barbara Friedberg

      July 21, 2014

  3. Three comments:
    Two years ago when my husband’s niece was in pharmacy school I asked her for her thoughts on legalizing marijuana for medicinal purposes. She said, “One of her professors had just lectured on this topic and had said in every pharmacy case there is now a better drug than marijuana, so the medicinal purposes of marijuana were a non issue.

    My sister’s husband’s family have been in the marijuana growing business for years. This is in addition to a successful family business. One of the nephews lives in Colorado and now grows marijuana legally. He is in a huge feud with his father for shutting him out of the profits – which are many times more lucrative than the family business. He feels he deserves a piece of the pie since he got his son started in the post business.

    At a DOT conference (it covered company’s responsibilities for drivers) the speaker a Wisconsin DOT employee said he sees marijuana eventually being legal in every state including WI. He then went on to discuss it will still be the companies responsibility to keep their drivers drug free when pot is legal. He also said all eyes are on Colorado to see how the handle this.

    So that is my current take on marijuana. As to an investment? It could be kind of a fun one to watch, but I’m with you – treat it as any speculative trend.

    Savvy

    July 20, 2014

  4. Hi Savvy, I’m fascinated with your personal information about medicinal and legal pot. I’m a bit surprised by your niece’s pharmacy profs take that there are better drugs. That seems like a grand statement. I’d be fascinated to speak with individuals actually working in the pot business. I have no doubt that there’s money to be made. But, I can barely grow a garden, so I think the cultivation end of the industry is out for me :). I expect at some point there will be some marijuana sector funds. I’ll check them out when there’s a bit more history with “pot industry” companies.

    Barbara Friedberg

    July 21, 2014

  5. I will see my sister next week and will try to get more information. My BIL won’t be there, but doubt if I could get anything useful out of him. He is an over talker and rarely makes sense.

    Both husband’s niece and her boyfriend are now pharmacists. I will see if I can learn anything further from them.

    Savvy

    July 21, 2014

    • Hi Savvy, Thanks for staying in touch. I’ll look forward to your next update. Curious to hear if the pharmacists have a different take now than previously. Let me know what your relatives report. Thanks, Barbara

      Barbara Friedberg

      July 22, 2014

  6. I was flying to go on vacation and was talking to this guy who was telling me about all of the money he was making by investing in a hemp stock. It was (and still is) a penny stock and I was thinking about all of the risks that went along investing in it. For me, the risks are too great to invest right now. It’s one thing to get in on the ground floor of a new technology. It’s totally different when that product is illegal in 40+ states and in the eyes of the Federal government.

    Jon @ Money Smart Guides

    July 21, 2014

    • Hi Jon, Agreed! Penny stocks aren’t for the faint of heart. If the pot industry becomes more stable and legal, then it may be worth a look. For now, I’d suggest only going in with cash you are willing to lose. Very speculative investments!

      Barbara Friedberg

      July 22, 2014

  7. Wow, great post Barbara. Never though of this as a investment idea and I will be looking at it in some detail. Thanks for sharing.

  8. Thanks for writing on the investment topic many of us are interested in but may be afraid to ask. The biotech aspect is most intriguing to me but now I see that the industry is still too young (and risky, for many reasons) for a regular investor like me.

    From what I’ve heard — based on a conversation with a friend who has a sibling who uses this drug to deal with pain from multiple sclerosis and an oncologist buddy — there is definitely medicinal value.

    Julie Rains

    July 24, 2014

    • Hi Julie, Pot seems to be a viable solution for many illnesses, especially pain. But, as an investment, it is definitely a speculative one. As with any new-ish industry, time will tell how the entire pot industry pans out, for investors and consumers. As others have said, I’m sure there is money to be made now, but only for those willing to “risk it all”.

      Barbara Friedberg

      July 24, 2014

  9. This is the 5th time this summer I hear of people looking to invest in something related to Marijuana. IT does sound intriguing, but with great risk. I would only do a grand or two to play with, nothing substantial.

    EL @ Moneywatch101

    July 28, 2014

    • Hi El, Whenever there is a “new” investment, the masses want to jump on board and get rich quick! I agree with you about keeping the investment in a new development such as medical marijuana to a certain amount. There’s nothing wrong with speculating, just understand and be prepared that you may lose a good portion of your cash or you may hit it big.

      Barbara Friedberg

      July 29, 2014

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