So, You Want To Invest in Marijuana …

Marijuana.com

Like any fast-rising industry, cannabis has plenty of people asking: How can I get in on the Green Rush? And for those unable to pick up and move to a medical or recreational state and pour their children’s college funds into the next hot marijuana-related business (aka MRBs), the temptation to invest in one of several MRB stocks is growing.

The industry undoubtedly holds tremendous potential for profitable investing, but before making any decision, investors should read this.

Heating up
MRBs as investments have been a hot topic for a couple of years now. Beyond the frequent chatter on CNBC and mainstream news outlets’ constant coverage, demand is clearly evident. Investor conferences have popped up all over the country. Startups are raising millions of dollars from private investors.

For those looking to invest via public markets, the available options may look tempting, but these companies need to be carefully evaluated before making any investment decision.

For one thing, many of these public companies have market capitalizations (what the market thinks they’re worth) under $200 million. Players include Medical Marijuana Inc., Advanced Cannabis Solutions, Blue Line Protection Group and more. These micro cap businesses can trade for as little as $0.01 per share, and the relatively few number of shares traded daily contribute to substantial volatility.

For example, take a look at Medical Marijuana Inc. (OTCBB: MJNA). The company takes cannabis and hemp plants and turns them into nutraceuticals, cosmeceuticals and pharmaceutical extracts. MJNA gets into proprietary labeling, testing and genetics, too. It’s important to note that, at a glance, there’s nothing inherently wrong with this business. Given that it’s a public company, and one that has scaled its operations to a holding company with six portfolio businesses and more than $10 million in revenue (as of last year), Medical Marijuana Inc. is a far, sophisticated cry from a strip mall dispensary or old-school head shop.

As a stock, though, it’s important to evaluate the company not only on its merits within a high growth industry, but as a potential investment among tens of thousands of publicly traded companies.

Get grounded
Medical Marijuana Inc.’s stock is extremely volatile — a product of few shares traded, small market capitalization and a general ‘iffiness’ from the market as a whole. Over the past five years, the stock price has swung from more than $0.50 per share to $0.02 per share. Had an investor bought in at the top and sold at the bottom (an ill advised strategy), they would have experienced something quite rare in equity market investing — a near total loss.

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