Why Investing in Marijuana Stocks Is Tricky

Why Investing in Marijuana Stocks Is Tricky

- in Health
613
0

Investor websites all across the internet are known to discuss hot marijuana stocks. Yet visit the New York Stock Exchange (NYSE) or NASDAQ website and you will be hard-pressed to find any such stocks listed. That makes investing in the marijuana industry tricky.

There are those who believe that marijuana stocks are going to boom should Washington move to decriminalize the drug. That makes sense. It also makes sense to get in on the ground floor now, so that you are well-positioned should any such boom occur. But again, investing in marijuana stocks is tricky. First you have to find them.

Federal Law the Sticking Point

The sticking point here is federal law. Because Washington still considers marijuana illegal, your major stock markets will not list companies dealing in it. That means no growers, no processors, and no dispensaries. Stock markets are also cautious about industrial hemp, though they are more likely to consider listings as long as companies are sticking strictly to that product and its derivatives.

For the record, industrial hemp was fully legalized nationwide under the Trump administration. That makes it easier to produce CBD products even in states with a more conservative approach to medical cannabis, states like Utah for example.

You can go into any dispensary in Utah, say Provo’s Deseret Wellness, and purchase both THC and CBD products with a state-issued card. State growers with the right licenses can produce both industrial hemp and marijuana. The big difference is that Utah’s medical marijuana laws fly in the face of federal law. Their industrial hemp laws do not.

Not Worth the Risk

Stock exchanges see the conflict between federal and state laws and choose to not list marijuana-based businesses. It is not worth the risk to them. They do not want to get in trouble with Washington for doing businesses with companies engaged in what is considered an illegal activity.

At such time as federal lawmakers decriminalize marijuana, that risk goes away. It stands to reason that marijuana-based businesses will be falling all over themselves to get listed at that point. They will want that influx of cash a typical IPO generates.

Buying Stocks Over the Counter

So what do you do if you want to get in on the ground floor now? Your best bet is to find marijuana stocks you can buy over the counter (OTC). OTC stocks are stocks that are not listed on regulated stock exchanges because they don’t meet exchange requirements. Nearly all OTC companies boast a market capitalization of less than $50 million.

It is quite possible to have a marijuana-based business with a higher market capitalization still trading OTC. Their market cap, volume, and price are not the issue. The issue is the business in which they are involved. They cannot get a traditional listing due to marijuana’s federal status.

The only way to buy OTC stocks is through a brokerage. So the first step is to find one that offers OTC opportunities. Then you set up an account and make a deposit. From there, you can buy OTC stocks to your heart’s content. Just know that companies offering OTC stocks are not subject to the same regulations as their counterparts listed on regulated stock exchanges.

Going OTC could be an opportunity for you to make good money. If a marijuana-based company you invest in does well down the road, your stocks could generate quite a return. On the other hand, you could also lose every penny you invest. It is yet another reason why investing in marijuana stocks is so tricky. Just be careful of any investments you make. You are never guaranteed a profit.

About the author

Leave a Reply

Your email address will not be published. Required fields are marked *