Beware of Marijuana Stocks

Now that Colorado has legalized marijuana for recreational use, should you jump in with both feet or beware of marijuana stocks. We are, by the way, discussing investment in marijuana related businesses and not your own recreational use! Is there money to be made investing in marijuana stocks? Fundamental analysis of these stocks is, well, fundamental. Marijuana is legal for medical use in California and New York may also make medical marijuana legal. Colorado is the first to legalize the plant for recreational use but others may follow. Which businesses will be profitable and which will be able to scale up when the opportunity arises? But, before looking at a couple of stocks, here is a bit about the law in Colorado.

Colorado Marijuana Use Law

Colorado has two sets of laws regarding marijuana. These have to do with recreational use and medical use.

Colorado Amendment 64 states:

Adults aged twenty-one or older can grow up to three immature and three mature cannabis plants privately in a locked space, legally possess all cannabis from the plants they grow (as long as it stays where it was grown), legally possess up to one ounce of cannabis while traveling, and give as a gift up to one ounce to other citizens 21 years of age or older. Consumption is permitted in a manner similar to alcohol, with equivalent offenses proscribed for driving. Public consumption remains illegal. Amendment 64 also provides for licensing of cultivation facilities, product manufacturing facilities, testing facilities, and retail stores.

This law allows for sales of marijuana for recreational use, taxation of profits from these facilities, and various ordinances relating to such establishments. It is the potential for profit from recreational use of marijuana that is of primary interest for those investing in marijuana stocks. Beware of marijuana stocks that do not comply with the law in Colorado.

Medical Use of Marijuana in Colorado

Colorado Amendment 20 allows for the use of marijuana in the state for approved patients with written medical consent. Patients may possess up to 2 ounces of medicinal cannabis and may cultivate no more than six cannabis plants (no more than three of these mature flowering plants at a time). Conditions recognized for medical cannabis in Colorado include: cachexia; cancer; chronic pain; chronic nervous system disorders; epilepsy and other disorders characterized by seizures; glaucoma; HIV or AIDS; multiple sclerosis and other disorders characterized by muscle spasticity; and nausea. Colorado medical cannabis patients cannot fill prescriptions at a pharmacy because under federal law, cannabis is classified as a schedule I drug. Instead, patients may get medicine from a recognized caregiver or a non-state-affiliated club or organization, usually called a dispensary.

Beware of marijuana stocks that focus on providing marijuana for a handful of people with rare diseases. This may well be a laudable social goal but not especially profitable. Too often really bad stock investments come from really good intentions.

Invest in or Beware of Marijuana Stocks

Remember when checking out new stocks in a new market niche that more folks made more money selling picks and shovels during the gold rush than made money digging for gold. Here are a few companies that may make money in the world of recreation and medical marijuana:

  • GreenGro Technologies sells growing systems and equipment to marijuana farmers. Its stock went up fifty percent of late
  • GW Pharmaceuticals deals with medicines derived from marijuana. Its stock rose a few percent at best.
  • Hemp, Inc grows industrial hemp and sells hemp seeds as food went up fifty percent.
  • MedBox makes high-security storage and dispensing machines for controlled medicines. Its stock rose by fifty percent.
  • MediSwipe Inc sells financial processing systems to the medical industry. Its share price recently climbed by about 70%.
  • Two California firms dealing with marijuana for medical use rose in price recently, Medical Marijuana Inc. and Cannabis Science.

Total market size is perhaps ten billion for recreational marijuana. However, it remains to be seen how many illegal users of pot will convert to legal users and submit to what they may see is nitpicking restrictions. As always consider the intrinsic value of stock and beware of marijuana stocks that do not have a clear forward looking income stream!

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