Marijuana Cigarette Investing

Brian Hicks

Updated August 16, 2013

As of now, twenty states in the U.S., along with the D.C., have voted to legalize medical marijuana. Some have even given the nod to recreational usage of marijuana. More, undoubtedly, will follow—the decriminalization and legalization of marijuana is a wave that’s steadily sweeping across the nation.

oct 2010 cannabis 1And right alongside this legal change is a growing business sector that’s already seen its first major venture capital company achieve some success (Privateer Holdings), while several other companies carve out niches for themselves.

Now, the marijuana revolution is touching on the topic of electronic cigarettes. It’s ironic, really. E-cigarettes were a creation designed to help people move away from smoking. Now, it could be reappropriated for a very different purpose.

CBS in Philadelphia quotes the experience of Chris Goldstein, marijuana activist and writer:

“Around the country, what you see is people using devices that look like electronic cigarettes.  E-cigarettes are usually used for a nicotine liquid, and you can replace that liquid with a cannabis oil or hash oil.”

This is primarily something seen within the medical marijuana community. That’s likely because—just like normal e-cigarettes—these are fairly expensive. And it doesn’t help that Philadelphia still sees marijuana (medical or otherwise) as a criminal thing.

But e-cigarettes in general are still expanding. Imperial Tobacco Group Plc (OTC: ITYBY), Europe’s second-largest tobacco company, is due to unveil a new “alternative” nicotine product—such as an e-cigarette—sometime next year. Majors like British American Tobacco Plc (NYSE: BTI) and Philip Morris International (NYSE: PM) have already come out with their own alternative nicotine products, so Imperial is seen playing catch-up here.

The news sent Imperial’s shares soaring 3 percent, reports Bloomberg. Certainly, such a development could boost Imperial’s sales profile. The U.K. views alternative cigarettes in a favorable light; British American saw its Vype e-cigarette received well in the British online market, and it hopes to receive approval for another such product by the end of this year.

You may be wondering how this ties into what I said earlier about marijuana. Well, more choices in the e-cigarette or alternative cigarette market is a good thing. It’s clear that marijuana can be delivered via these cigarettes.

With more models and more variety in the availability of e-cigarettes, it could very well burst the market open for innovation by marijuana entrepreneurs. After all, e-cigarettes are much more commonly available than marijuana products.

The main problem with them, at the moment, is cost—and that’s precisely what should go downward with wider availability. That’s why it may be worth looking into (from an investment perspective) the possible tie-ins between e-cigarette makers and marijuana businesses.

One such early entrant to the market could be Prohibition Brands, Inc. Prohibition’s product pitch makes it clear:

“Our smokable marijuana products can be compared to the marijuana version of a Marlboro cigarette or a bottle of Budweiser.”

The company’s products, which are essentially consumable marijuana smoking materials, are currently valid in Washington and Colorado. But we can certainly expect more states to follow their lead—meaning Prohibition’s potential market is only going to keep growing. That’s why it’s worth investigating such companies and others of their ilk, with a view toward the future.

Bumps Along the Green Road

On the other hand, there’s Denver. Denver’s worried about a so-called “green rush,” considering banning new businesses from applying for marijuana retail licenses until 2016.

Principally, this is intended to prevent a complete onrush of marijuana-based businesses later this year, when the city will begin accepting applications for retail sales. Denver should know; back in 2009, medical marijuana dispensaries began popping up all over the place—to the point where it seemed like there was just too much going around.

On top of Denver’s own concerns, in November, the state of Colorado will ask voters to approve a 25 percent tax rate for all marijuana sales. This breaks down into a 15 percent excise tax and a 10 percent “special” tax, reports the Daily Caller.

Moreover, the Denver city council has requested that the city add a 5 percent municipal tax, the objective of which is to generate about $9.2 million annually from marijuana sales.

So there are certain obstacles to marijuana entrepreneurship. And the federal government’s current stance against marijuana surely doesn’t help matters. Nonetheless, there’s a growing market out there, and you should keep close tabs on e-cigarette development.


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