It’s the talk at the water cooler…someone you know may be investing in…weed, ganja, cannabis…yep we are talking about marijuana stock! But should you add this growing industry to YOUR portfolio? Certified Financial Planner Paul Fain joins with his thoughts on whether or not these investments will go up in smoke.
WHAT’S BEHIND THE SURGE IN INTEREST IN MARIJUANA STOCK?
• Investors are seeking the big score! (20 years ago it was “.com” stocks, 10 years ago it was flipping houses, last year it was bitcoin)
• Regulatory momentum: Utah and Missouri passed resolutions to legalize medical cannabis. Michigan voted to green-light recreational marijuana. Canada became the first major world economy to legalize cannabis for both medical and recreational use. In the U.S., 32 states allow medicinal use.
• Businesses have popped up to service every part of the growing industry, from cultivating and growing cannabis, to distribution and retail marketing, and even to the biotech development of prescription drugs.
DO INVESTORS KNOW WHAT THEY ARE INVESTING IN?
There is some confusion! Before investing in any company, it’s a good idea to understand the basics of the business. There are two primary chemicals in the cannabis plant, known as cannabinoids:
• Delta-9 tetrahydrocannabinol (THC) is the primary psychoactive ingredient in marijuana.
• Cannabidiol (CBD) is another important cannabinoid that has been found to possess therapeutic benefits.
OKAY BREAK IT DOWN, WHAT IS THE CASE AGAINST INVESTING IN MARIJUANA STOCK?
• There is a risk that the projected growth won’t materialize — it’s important to remember that marijuana remains illegal at the federal level in the United States.
• Growth potential may already be reflected in marijuana stocks’ high valuations (price to sales ratio is 159 vs. 8 market average).
• Some investors may prefer to avoid marijuana stocks simply because they don’t like to buy “sin stocks” (alcohol, tobacco, gambling).
WHAT IS THE CASE FOR THESE INVESTMENTS?
• Growing industry as more companies “go public,” to raise cash to fuel additional growth.
• There will probably be several big winners (and losers) from this sizzling growth over the next few years.
HOW TO BUY
• Individual companies available on U.S. exchanges.
• At least two Exchange Traded Funds (ETF) have exposure to this new industry.
• It is a speculative investment! Limit any holdings to a “Vegas” account.
• In your financial life plan, continue to build long-term wealth with diversification into established markets.
Looking for specific investment advice? Contact us for an appointment!