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Marijuana Investing

The Ins and Outs of Marijuana Stocks

Written by Swagato Chakravorty
Posted April 10, 2013 at 4:23PM

Everybody’s getting high off the sweeping changes—both in public sentiment and in legislative rulings—going on across the nation when it comes to the issue of legalizing marijuana. The latest Pew Research Center poll on the topic indicates that public opinion has swung in favor of legalization (52 percent favor it) for the first time since it became an issue all the way back in 1969.

marijuana moneyLast fall, personal marijuana consumption was legalized in Colorado and Washington. Champions of the legal pot movement hope to see another 14 states reach legalization by 2017 (they’re aiming for the 16 states other than Washington and Colorado where medical use of marijuana is already legal). It's already legal in D.C.

And it’s a big (and growing) business; today, the legal marijuana market is worth around $1.5 billion.

USA Today indicates that experts believe this could explode into a market worth four times that by 2018.

What's in it for You?

Let’s admit it already—there is a pot of gold to be had by investing in the pot business and by being smart about it. Right now, it’s all fairly scattershot. The market is there, and it’s obviously a big one, but it’s also very fragmented. There are no clear leaders, no clear innovators. This means anyone with a vision can compel angel investors’ interest.

According to Jeffrey Miron of Harvard, the illegal pot market in the U.S. is worth around $18 billion or a little more. Some 2,000 legal marijuana dispensaries currently operates across the nation, with some notable public companies beginning to throw their weight around. San Diego-based Medical Marijuana (OTC: MJNA) is among these latter, with a net worth reaching around $200 million.

Yet selling marijuana remains a federal crime. On the other hand, President Obama has gone on record saying that recreational pot usage is not exactly a tremendous concern for federal prosecutors. It’s a delicate area.

Most investors, therefore, are seeking to reduce their risk by looking into publicly traded companies rather than the purchase and sale of marijuana. A 2011 Department of Justice memo does note that large-scale marijuana growing remains federally illegal even if the purpose is to supply medical marijuana shops.

One way people are breaking into the business is by creating supply chain documentation systems, which help store owners and growers keep track of their product all the way from fields through final sale.

MJ Freeway, based out of Denver, pursues exactly this tactic, selling its system to 400 legal stores across 16 states where medical marijuana is legal, and the two-year-old company has already reached profitability.

The biggest issue right now is the federal stance on the whole matter, which has yet to be clearly resolved. Another interesting issue is that there just may not be the kind of explosive demand fans of marijuana legalization may have expected.

In Colorado and California, for example, there’s already a move toward consolidating medical marijuana shops. And Los Angeles has an ongoing referendum that may limit the total number of such shops to the 135 that had already opened up by 2007.

Pot of Gold

From illegal drug to regulated commodity, the very nature of marijuana on the markets is changing. As the sector gains momentum, there will be an increase in public trading of marijuana stocks. More importantly, the public focus on both medical and recreational marijuana means that growth is likely to be very rapid.

Right now, most new companies are trading in penny stocks. However, share prices appear to be all over the place. GrowLife Inc. (OTC: PHOT) offers a full range of equipment related to marijuana. Its share price lists near $0.07, but it has a market cap of $23 million.

Or take Hemp Inc. (OTCC: HEMP). This company focuses on services, products, and information concerning the medical marijuana sector. It's invested in a web portal while also developing transaction processing software platforms. Shares go for around $0.75, but the company has a market cap of $58 million. Unlike GrowLife, which has a revenue growth of 120.70 percent, Hemp doesn’t really have any revenue growth.

On the other hand, Medical Marijuana Inc. (OTC: MJNA), which I mentioned earlier, is a larger entity. It has a much more comprehensive portfolio of services, and its numbers reflect the growing market. Share prices go around $0.29, and the company has a market cap of $218 million. Most interestingly, though, the latest quarterly revenue was an increase of 1,369 percent over the year.

Speculative investing is what’s called for now, and with the right kind of information, this would be a great time to get an early start on what is bound to be an expanding industry.


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