How to Invest in Legal Marijuana
By Robert Stitt
Gallup poll numbers support the idea that most Americans favor the legalization of marijuana. It’s not just the potheads that are excited anymore. Today, the suit-wearing, tie-tieing, oxford-shoe-styling types are rooting for its legalization. Why? There is money to be made in the legalization of marijuana, and we are not talking about setting up a stand on the local street corner or even opening a brownie store. The business these ladies and gentlemen are interested in is much larger and corporate. They are interested in the possibility of marijuana stocks.
The stock market is the perfect place to raise capital if you are looking to go big in the reefer game. There is the R&D component, just as there would be for any crop, including the marketing, sales, storage, distribution, branding, and the list goes on. If you can buy shares of Chipotle, why not pick up some paper on the local weed franchise as well? After all, munchies and toking go hand-in-hand.
If you think that this is just a silly idea that will likely never come to pass, think again. A few forward thinkers already have their companies listed, and traders are grabbing up the stocks. According to Viridian Capital & Research, the cannabis sector (yes, it already has its own sector) stocks it watches were high flying, posting gains of over 17 percent in the second quarter.
Art Hogan, Managing Director and Chief Market Strategist at Wunderlich Securities advises caution, however. The marijuana market is the wild west of stock trading right now and many people will make money, but many people are going to lose money, as well. “There are a barrage of stories about companies that have failed in this alluring sector. It has no federal regulation, and no banking. It’s still in large part a cash business,” Hogan said.
Scott Grieper, president and founding partner of Viridian Capital & Research, agrees. While Viridian does follow and trade in cannabis stocks, he offers this reasonable advice, “When it comes to investing in marijuana companies, many of the same rules should be applied to investment decisions about any company.”
When Black Enterprise asked Grieper what some of the areas he looked at before buying the stock, he mentioned management and the ability to compete. Great management is still the key to success in the business world. You can have a great idea, but without proper leadership things are going to fall flat. In the marijuana business, you may find people who know how to grow some plants, but they don’t know anything about marketing, sales, government regulations, and the like. As far as competition goes, a company needs to have something that sets it apart from the competitors. Do they offer a better product, a cheaper product, what is their plan?
Grieper noted that the industry is newer to the Unites States, but that it is a global business. Further, when the companies hit the stock markets, they are no longer just mom and pop stores with a pen and ink ledger; investors should really do their research. “These companies file 10-K reports with the SEC, which describe management. They file 10-Q reports that can help you evaluate performance. This information is public domain. Technology has made it easier than ever to find out information and news about a company or a sector.”
As with any stock, the rewards are there for those who do their research and make wise plays. Never forget that the market can be unforgiving, however, and don’t invest that which you cannot afford to lose.