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Growing the Grow

Global spending on legal cannabis is expected to grow 230%, to $31.3% billion in 2022, compared to $9.5 billion in 2017, according to Arcview Market Research and BDS Analytics. The research suggests that most of that, nearly $23.4 billion, will be spent in the U.S. With more states voting for the legalization of marijuana and business interest sparking, that definitely makes sense.

In the year ending Jan. 11, 2019, the United States Marijuana Index fell 20.7%, compared to a loss of about 6.5% by the S&P 500. But the marijuana index then rose from $91 at the start of the year to $120 May 10, 2019, an increase of about 13%, a tad better than the S&P’s rise of a bit under 12%.

That is not exactly an apple-to-apple comparison, but it does make a case to carefully investigate investments in marijuana stocks before you buy.

Marijuana Regulation: The Facts

While Canada legalized marijuana in late 2018, it remains illegal under federal U.S. law and is still classified as a controlled substance without proven medical benefit, along with heroin and LSD. However, with some 30 states voting to make cannabis legal for medicinal use, recreational use, or both, marijuana regulation in the U.S. essentially is a hot mess.

The number of states in which voters have approved the legalization of marijuana for medical or recreational use or both.

In 2018 alone, the following states voted in favor of marijuana legalization:

Oklahoma: Voters approved legalizing marijuana for medical use.
Utah: Voters approved some use of marijuana for medical purposes.
How messy is it getting? The Transportation Safety Administration posted a lengthy Instagram message in May 2019. The TSA informed travelers that they most definitely are not looking for marijuana in anyone’s luggage. However, if they find it they are obliged to report that fact to the federal authorities.
The state of regulation and federal law enforcement will, needless to say, determine the fate of this industry.

Where Marijuana Stocks Are Listed

Both the New York Stock Exchange (NYSE) and the Nasdaq got their first pure cannabis company listings in 2018. The Cronos Group became the first to make its trading debut on Nasdaq in February of that year, while Canopy Growth Corp. became NYSE’s first pot listing in May.

Many marijuana companies remain penny stocks and are traded primarily in the Over-the-Counter (OTC) markets. That increases both investor skepticism and risk perception for any investment.
In light of the regulatory uncertainty, some companies in the sector have headed north of the border. California-based MedMen is an example, as reported by CNBC.
What to Watch Out For

As with any investment, investors must do their homework before they place their bets. That can be difficult for companies trading in the OTC markets, which have less stringent filing and disclosure requirements.

Just because a cannabis company is trading on the OTC Markets Group, that doesn’t mean that they’re a sketchy stock. It only means that it’s the only place that they could go. So there are some good names in the OTC Markets group. Don’t let that scare you away. And having said that, there are some less-than-stellar names in the New York Stock Exchange trading there,

Debra Borchardt, co-founder, and editor-in-chief of Green Market Report said in an Investopedia Webinar on Cannabis Investing. Take, for example, INSYS Therapeutics (INSY), a Nasdaq-listed pharmaceutical company that was betting big on a cannabinoid oil-based drug to treat loss of appetite in AIDS patients and nausea caused by chemotherapy and anti-cancer medicine. The company got FDA approval for its drug Syndros in 2016. However, its stock took a beating from its 2015 highs of about $44 to about $5.74 in October 2017 when company executives were charged with offering kickbacks to doctors to prescribe its fentanyl-based drug Subsys. It closed at $3.58 on May 10, 2019.

Borchardt also cites The Green Organic Dutchman Holdings Ltd. (TGODF), a Canadian company that listed on the Toronto Stock Exchange in May 2018 and saw its shares fall 36.7% by the end of 2018. A major reason may have been that the company had no revenue. It has since reported revenue of $1.8 million for 2018.

You could invest in the growers, the so-called “plant-touching” companies. If you prefer, you could invest in a company that is strictly in the business of medical marijuana.

Where to invest in 2019 in the Marijuana Markets? 

See which American and Canadian Companies we have selected in our Category Grow Markets and separate Analyses.

 

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