Investing in Marijuana: Is it Worth It?

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As people become more tolerant of the use of cannabis both medically and recreationally, multiple stock exchanges have come to carry issues of companies whose primary focus of the business is on cannabis. These companies vary, ranging from makers of fingerprint-activated vending machines (Medbox, Inc. (OTCMKTS:$NGBL)), to the institutional version of hydroponic grow boxes (Terra Tech (OTCMKTS:$TRTC)), to plans to make a line of sun creams and AIDS drugs available in pharmacies everywhere (OmniCanna Health Solutions (OTCMKTS:$ENDO)).

New and exciting, the marijuana industry has begun to garner a lot of interest and attention from investors. However, one should take caution before getting into marijuana investments.

Hints of the Wild, Wild West Still

Even with 8 states legalizing marijuana recreationally and medically and more than half legalizing some form of medical marijuana use, the industry is more hopeful than established.

There are only a handful of public companies involved, and for the most part, propose more blueprints rather than the making of actual products and/or services. However, the industry is still relatively new and growing, and one could have said the same thing about the software/tech industry in the 1970s, or the gold mining operations in the 1850’s. The point is, we all have to start somewhere.

Despite old speculations of major tobacco companies to be a big player in buying up cannabis stocks as the drug slowly become legalized, no major corporation has yet been willing to get into the cannabis industry, much less invest in it. This is because the drug itself is still illegal to manufacture, distribute, dispense, or possess on a federal level in the United States.

Those looking for marijuana stocks to invest in, thorough research must be conducted as the growing market has many illegitimate companies and/or claims made by companies.

Still No Fire, Yet Lots of Smoke

When the stocks of Medbox (now Notis Global) began trading over-the-counter in the late summer of 2012, the stock was a rollercoaster. Within a week, the prices went from $4.25 to $205 to $20. Since then, the stocks have shown a pattern in which declining prices are met with random and sporadic spikes. Just recently, the company has been charged by the Securities and Exchange Commission (SEC) for releasing false revenue numbers to investors, claiming to be a leading company in the marijuana industry when some of its earnings had allegedly come from a shell company. In the light of these events, the company has gotten new management and a new CEO as well as a board of directors, and have accepted all charges by the SEC.

Notis Global is an example and a caution for those eager to get into marijuana investments and want to throw themselves at the first stock that shows up. Despite many supported claims that the cannabis industry will be a multi-billion industry, it is still small, unpredictable, and full of allegations that may be hard to detect if you were not a seasoned investor.

Another example of a seemingly promising stock is CannaVest Corp., a company that makes shampoos, conditioners, and other skin care products using hemp. Although there is potential for a rather strong market, the company loses about $1.06 for every dollar it earns.

These examples are not to discourage those who support marijuana investments or want to get into marijuana investing, but rather a preemptive warning to take caution, do research, and to not expect great profit right away.

Penny Stocks Do Not Mean A Ton of Interest

Because of its status as not just a startup company but a startup industry, over-the-counter trading is the overwhelming rule, not the exception, amongst marijuana investing. Companies like mCig, Inc. (OTCMKTS:$MCIG) trade over-the-counter and was not entirely successful at making sales until very recently. Even then, its stock prices are unpredictable and do not go above $1.

Despite popular belief that once you get into marijuana investments you will be sure to earn money, the fact is that is is almost impossible to gain huge profits with penny stocks that are being traded at the edge of the stock market. Watch out for companies that restrict themselves only to marijuana-focused products, as this can essentially be damaging to its profits. For example, an upstart pharmaceutical company that only make drugs specifically from cannabis is restricting itself from other non-cannabis research and development.

When searching for marijuana stocks to invest in, ask yourself if the company is truly using the cannabis as an essential, key part of the product, or if they are just slapping the buzzword ‘marijuana’ on it to gain some profit and interest.

The Takeaway

There are, presumably, people who get into marijuana investments for the traditional reason: exploiting undervalued assets for a healthy return. Others hope for the industry to stable and grow, while a handful jump into the marijuana investing after only vaguely hearing that is set to be a multi-billion dollar industry. Whatever your reason, make sure you do thorough research before deciding if you want to invest in the industry and whether or not it looks promising long-term. As well, get investment advice from professionals, rather than solely poking around the internet.

Featured Image: depositphotos/TeriVirbickis