2016 may not have been great for American politics, but it was a great year for weed. Many Americans voted a big “yes” to legalizing pot across several states. In California, Nevada, and Massachusetts, voters approved legal measures to open doors to the recreational use of marijuana. Many other states also saw pro-marijuana measures approved by voters. This pro-pot wave comes after Colorado and Washington have already legalized the recreational use of marijuana.
This sudden popular approval of marijuana use has not been overlooked by investors. In the years since 2012, marijuana stocks have been on the rise. There’s a clearly observable trend of marijuana penny stocks gaining traction. This should indicate a great time to invest in marijuana. But is it?
Savvy investors know that following the herd is never a good idea when it comes to investing in anything. In this light, is the marijuana craze just hype? Is it wise for regular investors to take on risk by investing heavily in weed? Here’s a sober look at the current marijuana investment craze:
The Difference between Investing in an Idea and an Actual Asset
When Colorado passed Amendment 64 in 2012 that paved the way for legalization, cheap marijuana stock prices skyrocketed. As it turns out, people were buying stocks in companies just because “cannabis,” was part of the brand name.
More recent analyses show that pink sheets companies like GreenGro Techs and Aurora Cannabis have experienced remarkable price hikes in stock value, but with similarly remarkable amounts of liabilities and lack of any worthwhile assets.
What all this shows is that people are investing in an idea or a concept rather than a valuable asset. Considering that states are rapidly moving to legalize recreational pot, wouldn’t it makes sense that pot companies would be highly valuable in the not-so-distant future?
Hold on to that thought.
The Party Pooper—Jeff Sessions
Much has changed in the American political landscape since 2012. Namely, the new Attorney General is firmly anti-pot. Not long after taking office, Jeff Sessions rolled back an Obama-era directive that curbed federal prosecution of marijuana in states that have legalized the substance. In a major blow to marijuana decriminalization, the feds can go after pot users even in states like Colorado and Washington.
Sessions has not held back in indicating similar measures in the future. Though there is massive public support for legal pot, there might not be enough on the legal front. The appointment of Sessions has firmly halted the winning streak cannabis was on.
It remains to be seen whether Sessions would take further action to crack down on legal pot. But this level of uncertainty does not bode well in the market. The weed companies that look so promising today could end up being labeled as criminal enterprises in the future.
Where the Actual Cannabis Money Is
The fate of recreational marijuana may be balancing delicately on a tightrope, but many investors and legislators are more optimistic about medical marijuana. Even Sessions has caved in and admitted that medical marijuana may have “some benefits.” Barring Sessions, a considerable majority of state and federal legislators are moving to make medical marijuana more accessible to the public.
The potential for marijuana in the healthcare industry is also looking surprisingly good. Some doctors are considering marijuana to be a viable alternative to highly addictive opioids that have resulted in an overdose crisis. There’s a lot of promising early research on cannabinoids, the chemical in cannabis plants, that indicate positive effects on diseases like epilepsy. Some studies have even shown that cannabinoids kill or reduce the size of cancer cells.
All in all, the outlook is very positive for medical marijuana. Therefore, this is the sector cannabis investors should focus on right now. Medical marijuana companies, which are really biotech businesses, are moving ahead with research and healthcare application of cannabis. The political and legal challenges to medical marijuana are minimal at this point.
Investors who want their money in the cannabis sector should first understand where the industry is headed in terms of recreation and medication. Things are not looking good for recreational pot at the moment, but the opposite is true of medical marijuana. For those who insist on investing in cannabis, these are the stocks that are actually worth buying.