Cannabis is now medically legal in most states and legal in a few including the one where most of my clients reside. The legal cannabis market is already a multi-billion-dollar industry that employs tens of thousands of people. Cannabis is a hot investment idea and many clients ask how to profit from it. Before you publicly invest in this growing sector it is important for you to know the current risks associated with it.
Most Are Penny Stocks
Investing in penny stocks (a stock that is less than $5 per share) is a risky and speculative way to publicly invest your money. In fact, investing in penny stocks is a great way to lose money. Penny stocks do not trade on a public exchange like the Nasdaq or NYSE. These companies are less regulated and there is less information made available to investors. Moreover, low trading volume is another hallmark of penny stocks; this means that there are less buyers and sellers on a given day which results in pricing issues. All this results in many cannabis stocks being a risky investment.
It Remains Federally Illegal
Remaining federally illegal prohibits growth. It also means there is always the possibility that the federal government will intervene. The near-term future does not bode well for the industry either as the current Attorney General is anti-cannabis. Since many banks adhere to federal law many marijuana businesses have to deal in cash. This is not only dangerous but cumbersome. Some companies might even have issues expanding since it is harder for them to secure financing. Even advertising is limited.
Beware of One-Hit Pharmaceutical Companies
Some of these companies are looking to develop and distribute a hit cannabis drug. If there are hurdles or they fail, then the stock can fall. Look for companies that aren’t relying on a break through. This diversification can possibly help the company survive.
Despite these risks, there are some ways to prudently go about investing in cannabis. Ideally you want to make an investment in a company that is on a public exchange and adheres to the same standards of reporting that an investor deserves. Ultimately any cannabis investment will involve some political risk while it stays federally illegal. If you want to find out more about companies that are striving to profit from this growing industry give Gerber Kawasaki a call.
By Zachary Bainter
Securities offered through LPL Financial, Member FINRA/SIPC.
Investment advice offered through Gerber Kawasaki Inc, a registered investment advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
Gerber Kawasaki, 2716 Ocean Park Blvd. #2022 Santa Monica, CA 90405. Contact us at (310) 441-9393.