Have You Ever Tried Investing... on Weed

According to a study coordinated by the National Institute on Alcohol Abuse and Alcoholism in 2015, nearly 10 percent of Americans had smoked marijuana at least once in the past year. That accounts for 30-plus million people, which is slightly more than the total population of Texas. But it's only recently that the government has finally started to catch up with average citizens' attitudes toward the drug, which in the last half century has gone from the source of tremendous moral panic to something much less severe, something approaching a virtual non-issue.

Public policy is beginning to reflect this shift. Four states (California, Nevada, Massachusetts, and Maine) passed legislation decriminalizing weed for recreational use this past election, adding to an already healthy list where it can be enjoyed—for the most part—without fear of reprisal from law enforcement. Beyond US borders, the Canadian prime minister Justin Trudeau vowed to legalize cannabis across the country as soon as he took office. It's strange to think that in a moment where hard-line conservatism is sweeping much of the Western world, weed is more or less a bipartisan cause. And as attitudes about weed change, and it becomes available legally in more places, an opportunity to make money has been enjoying increased attention for a few years now: buying stock in companies hoping to capitalize in the quickly growing industry.

"You could almost watch a correlation between how much volume our stocks moved and how well Trudeau was doing in the polls prior to the election," says Jordan Sinclair, director of communications at Tweed, an Ontario-based cannabis business owned by the overarching company Canopy Growth. "People would see his chances improving and think, Oh, how can I capitalize on this?"

Canopy Growth, which describes itself as "a world leading diversified cannabis company," is one of many trade-able enterprises that are taking advantage of the newly fertile corporate ground for marijuana in North America. Hopeful investors are dumping money into these weed companies the same way you might take a flyer on a bright-eyed tech company. And for good reason: With pharmaceutical conglomerates producing cannabis-related medical products, and speculative companies getting their feet wet in the burgeoning possibilities of decriminalized recreational weed, CNBC reports legal marijuana sales will eclipse $20 billion by 2020.

You may be wondering how these businesses can position themselves in the marijuana sector despite national prohibition. Weed is still a Schedule I drug, and there's no guarantee enforcement of the drug will continue to be de-emphasized by the federal government—effectively drying up locally legal marijuana sectors. Still, in early 2015, the US Securities and Exchanges Commission (SEC)allowed the registration of shares of storefronts whose business model included the cultivation and sale of marijuana, and there are many other companies tapping into the industry without directly touching the plant.

The valuation of Miami-based Novus Acquisition and Development, for instance, jumped a ridiculous 3,100 percent in 2014, and it focuses mostly on providing membership services for alternative medicine patients. The Scotts Miracle-Gro Company is pouring millions of dollars into hydroponics, apparently convinced the weed sector will invigorate the sale and production of its grow lights across the country. There's even a Denver-based social platform for marijuana called MassRoots, which applied for NASDAQ listing last year. Which begs another question: Are weed stocks something savvy investors should be considering adding to their portfolios, or is it foolish to put your money in something that could go belly up with a new, possibly less weed-friendly administration? "There are definitely some concerns in regard to this due to previous commentary from Jeff Sessions, but I look at that as noise," says Jason Spatafora, one of the owners of marijuanastocks.com, and the self-proclaimed "Wolf of Weed Street." "This industry is the fastest-growing emerging industry in the world and employs hundreds of thousands of people, churning billions of dollars in revenue. The election had both red states and blue states adopt cannabis legislation, and it stands to reason that it signaled a paradigm shift for cannabis."

One of the epicenters for amateur marijuana investors is r/weedstocks, a subreddit for enterprising hopefuls to discuss, advise, double-down, and commiserate. It's a fast-paced ticker-tape for a very specific corner of stock exchange. Every day, the faithful try to keep up with a volatile industry. Last November, Canopy Growth's value dropped 15 percent on a Tuesday, only to rebound 20 percent the following Wednesday. The subreddit is there every step of the way, a support group of sorts for those navigating these new and sometimes very choppy waters.

"Raiden" is a regular on r/weedstocks, and started investing in marijuana in 2013. Over the past four years, he's watched all the triumphs and anxieties you'd expect from a developing sector, and maintains that buying weed stocks isn't nearly as clandestine as you might expect.

"You can trade weed stocks through most platforms," he says. "Your typical new entrant is going to use an online trading service like Scottrade, Etrade, Schwabb, TD Ameritrade, etc. It is just the same as buying or selling any other stock."

The users on r/weedstocks rely on each other, because there's no definitive mainstream literature on marijuana stocks. The weed industry is still nascent, and while a small handful of cannabis-related companies like GW Pharmaceuticals and Cara Therapeutics are traded on the NASDAQ, most are unlisted. "You're normally trading in penny stocks here, and inherently taking on a higher risk because of it," says Raiden.

Companies that trade smaller, over-the-counter stocks aren't required to show the same transparency as the conglomerates on the New York Stock Exchange. That doesn't mean you can't make money off them, but it does open the door for more uncertainty, and more mischief.

In 2014, the US Securities and Exchange Commission suspended five weed-related tickers for fraud, surmising that "fraudsters often exploit the latest innovation, technology, product, or growth industry—in this case, marijuana—to lure investors with the promise of high returns. Also, for marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company's management, products, services, and finances. When publicly available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors."

Bombshells like those suspensions can cause sudden ups and downs in the weed market. "There are probably hundreds of tickers out there touting a connection to cannabis," Raiden says. "People saw the wave, put out some PR fluff that they knew a guy who knew a guy who owned a grow store and operation. It can be very shady if you don't know how to perform your due diligence on a company or at least properly look over their charts, stability, share count, etc." He adds: "A few stocks were made examples of, and for good reason."

Sinclair concedes he's noticed some troubling incidents of fraud in the past, but maintains that any instability in the market is predictable given the newness of the trade. Eventually, the real players will level out.

Ultimately, Raiden believes if you're savvy and do your research, weed can be a viable investment. For now, he recommends people stick to stocks that don't deal directly with marijuana production, instead investing in weed-adjacent equipment manufacturers or consulting firms. Those businesses should still be viable even if Mike Pence or Jeff Sessions go to war with pot. "We believe states' rights will be honored, but having the federal level accept legal weed income is a whole new ball game. We don't know what our political climate will cause, but there are some favorable signs in the new president," he says.

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