Are High Times Coming for the Legal Marijuana Business?

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With the legalisation of medical and even recreational cannabis set to explode, many markets are high on pot, but a come-down may be imminent. Are cannabis stocks or businesses a good investment?

While medical marijuana has long been tolerated – it is even legal under the United Nations’ international treaties – recreational marijuana is still prohibited in most parts of the world, including the majority of the United States.

On the state level, legalised cannabis, for both medical and non-medical use, has been expanding in the US. About 30 states, covering 60% of the population, permit medical use (though the standards for what is medical use is not always stringently enforced). Six states- Alaska, California, Colorado, Nevada, Oregon and Washington – already allow recreational sales, with another three allowing possession but not (yet) sales.

Cannabis Legalisation Expands in the United States and Canada

There have been a number of recent developments in the sector. The Maine state legislature finally seems to have passed a bill to allow for the retail sale, regulation, and taxation of marijuana by veto-proof majorities. (The state’s voters passed a ballot measure allowing for possession, but the governor blocked legal sales anyway.)

In Vermont, possession becomes legal on July 1, but sales won’t until at least 2019 when the governor evaluates the findings of his “marijuana commission reports on education, prevention, and highway safety.” The District of Columbia – the nation’s capital but a state – likewise allows possession but not sales.

Massachusetts and, more significantly, Canada are scheduled to legalise recreational sales on July 1 (though foot-dragging may delay implementation a bit longer).

Significantly, although marijuana remains illegal at the federal level, President Donald J. Trump seems to have agreed to a hands-off policy in Colorado – and perhaps other states that have legalised marijuana use within their borders – despite the opposition of his Attorney General Jeff Sessions. Former Speaker of the House of Representatives John Boehner, a longtime marijuana opponent, seems to have changed his mind – in the face of popular opinion, the plight of US military veterans with post-traumatic stress disorder and chronic pain patients – and actually joined the advisory board of a legal marijuana company.

That’s just in North America. In Europe, Germany has legalised medical marijuana, and Portugal has decriminalised all drug use. In South America, Uruguay has begun selling recreational cannabis to consumers through pharmacies. And even the UN’s World Health Organisation, faced with all these tumbling dominoes (and getting cranky that reminders from its International Narcotics Control Board are being ignored), is at least considering changing marijuana’s illegal status under international treaties. (The US Food and Drug Administration is hearing public comments on possible rescheduling until April 23.)

Marijuana Market Risks

The legal marijuana market seems to be expanding, but that is not necessarily the case. In Germany, for instance, the legal medical marijuana programme is only a five-year trial, and there is continuing opposition from most of its political parties and citizens.

The US, which promises to be the largest and potentially most lucrative market, has its own drawbacks. Sessions has rescinded three memos that permitted a policy of non-interference by the Department of Justice towards states that permit marijuana possession and sales. If Congress approves funding, state businesses that deal with marijuana might be shut down and prosecuted.

Even without a crackdown, direct investment in US “canna-businesses” is financially and legally risky. The Feds might interpret such investment as drug trafficking, a much more serious offence than possession. Banks still won’t or can’t accept deposits from or issue paychecks for marijuana retailers or producers, keeping it mainly a cash business. The profits currently being experienced in markets such as California and Colorado may face price compressions as legalisation continues to spread.

Most damning, according to The Motley Fool and others, most marijuana stocks just aren’t profitable. So, while cannabis has great growth potential, some say it’s not the best investment for the risk-averse, at least not in the US.

Where to Invest in Cannabis

The news isn’t all bad for investors, as there may be more promising markets. Despite the UN, Australia, Canada, The Netherlands and Uruguay – and probably Israel now – have legalised exporting marijuana to other countries, including Germany. Canadian and one UK marijuana stocks rose from one to four percent just in response to Boehner’s volte-face.

Wall Street isn’t completely ignoring the US cannabis market, either. It was a $7bn industry in 2017, with a projected growth rate of 29%, and that’s a lot of money to leave on the table.

Some investor strategies suggest investing in well-established companies that have added marijuana or marijuana-related products to their portfolio but are not exclusively cannabis-focused. Pharmaceutical companies have cannabis-based drugsavailable or in development, including AbbeVie’s synthetic THC drug Marinol. Lawn-and-garden-care companies such as Scotts Miracle-Gro are developing products for marijuana growers, such as pesticides for cannabis plants.

Networking. Green Table, launched last year, specialises in connecting “ganjapreneurs” with people and businesses with lots of money to invest including private equity funds and individuals with an “ultra-high-net-worth”. One of Green Table’s clients was raising $120m.

Investing in Rehab

Still another business that could be regarded as marijuana-related is substance abuse treatment, which in 2016 was estimated to be a $35bn dollar business. How they are related to marijuana may be argued.

One of the reasons Boehner says he reversed his opinion on marijuana is that there have been several studies that suggest rates of opioid overdoses and deaths decline in states where there is legal marijuana, such as California. It’s possible that marijuana could be used to wean addicts from opioids, At least one California rehab, High Sobriety, already does.

On the other hand, Sessions believes marijuana itself is as addictive as heroin, though there’s scant scientific evidence to back him up. Still, anything can lead to dependency, psychological if not physical, and most rehabs – including Chapters Capistrano – California Addiction Rehab – prohibit marijuana use in rehab even if they don’t offer marijuana addiction treatment per se.

Cannabis Futures

The future of cannabis is still speculative, but everything seems to be trending toward marijuana moving from the prohibitive “no safe use” category to at least limited personal use and regulated retail sales.

The benefits of legalisation include the diminution of the black market and related violent crime, better control or knowledge of the strength of strains, reduced costs for law enforcement and imprisonment, and increased tax revenues. How much of a boon marijuana will be to individual investors is less clear.

By: Stephen Bitsoli, The Market Mogul

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