Don’t Get High on Marijuana Stock

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By J Maslow

medical marijuana
Medical marijuana “prescription” with bottle and stethoscope.

It is easy to get excited about the stock of companies that deal in the legal US marijuana market. As you probably already know, there is a growing trend in the United States to legalize marijuana. It is just a matter of time until a large number of U.S. states have completely wiped away the state legal barriers to possessing and using marijuana for totally recreational purposes. Add to this the number of states that allow marijuana usage for medicinal purposes and you have all the ingredients you need for a fairly robust national market for cannabis.

The opportunities are so easy that even a blind person can see it. The big danger is on investing in it. It is one thing to spot the opportunity and the millions of people who will be lighting up joints every single day, making money off this trend is another matter entirely. It takes a lot more effort to figure out the companies that are well situated to actually make money off that trend.

Be very careful of the companies you invest in. For example, the story of Advanced Cannabis Solutions should make for one particularly strong cautionary tale. On March 5, 2014, Advanced Cannabis Solutions’ stock hit a high of $64.64. It hit this point in the span of eight days. It tripled in price. However, by the time March 27 rolled around, no other than the Securities and Exchange Commission put an end to the stock’s trading, because of potential illegal trades in the stock.

Now that the company has cleared up the smoke regarding its white-hot stock, the price of its shares is now around $5. This is actually not bad considering that the price was around $1 for a long time. What is Advanced Cannabis’ business? It leases growing and office space to marijuana businesses. That’s it. That’s the big plan.

It is easy to get blinded by the opportunity, and there are a lot of companies that try to cash in on marijuana. But most of them might not be good buys. There are a lot of questions lingering over the financial health, as well as the legality, of many of these businesses. If you have the munchies for a marijuana stock to buy, it is probably a good idea to wait until the federal ban on marijuana is resolved one way or the other.

Moreover, the best bet would probably be to buy in to large tobacco companies that would move in to the marijuana space. It is only a matter of time until the big tobacco players move in to marijuana. The marijuana market is not going anywhere. It is a multibillion dollar market. And as legal barriers disappear, expect more and more multibillion dollar companies to move into that space.

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