An old friend, who’s got a nearly 20-year old son, tells me that every time her son was leaving the house as a teenager, she reminded him to “make good choices.” Someone should be offering such simple counsel to anyone contemplating investing in a publicly-traded marijuana company.
There are certainly some good cannabis-related companies trading publicly right now, and the wariness about investing in marijuana stocks is not due so much to the companies themselves. Instead, it’s the simple fact that the newness and the fragmentation of the legal marijuana market (both medical and recreational) make it difficult to pick winners (as does the Federal prohibition). Buying stocks over the counter (the only market available for marijuana stocks) in any industry has always been somewhat of a crapshoot. Companies that don’t have to comply with the significant listing requirements of an exchange like the New York Stock Exchange or Nasdaq generally have an easier time taking advantage of new and naïve investors. For anyone who has seen The Wolf of Wall Street, the pump and dumps that Jordan Belfort used to get rich were all sold over the counter.
Buying a cannabis stock should be no different from buying any other stock. One generally should not just decide to buy a cannabis stock and then throw a dart at a list of the cannabis companies that trade publicly. One must conduct the sort of due diligence commensurate to the investment.
We have seen too many who have not.
One of our cannabis lawyers, Robert McVay, was interviewed by the Seattle Weekly regarding publicly traded marijuana companies and he had this to say:
Robert McVay is a lawyer at CannaLaw Group, a Seattle-based firm that specializes in marijuana-related cases. He gets calls all the time from people who bought shares in a pot-related company only to find it was millions in debt or existed simply to separate suckers from their money.
“Just because a company’s listed ‘over-the-counter,’ it doesn’t mean they’re up to no good,” he says. “They could be doing it to get funding, and to get an idea of their market valuation. The problem is this is a new and exciting market for people, and there’s lots of new investors without much history. They make bad choices.”
The take away: There will be winners and losers in the cannabis industry just like in every other industry. Despite its rapid growth (or, rather, precisely because of it), plenty of companies with presently high profiles will fail … and as-yet-unknown companies will emerge and thrive. If you are going to invest in a cannabis business, be it publicly or privately traded, the only way to win is to make good choices.