How to Invest in Marijuana Stocks Today

Marijuana StocksMarijuana Stocks Today 

The state of the marijuana industry is in constant flux. Being as it’s so reliant on governments passing laws regarding usage of medicinal and recreational weed, the news has a prominent effect on weed stocks, compared to stocks in other industries.

After all, very few companies worry on a daily basis whether the government will step in and seize their products. With those concerns in mind, alongside the rapidly growing stock prices, many have begun to ask if there is a marijuana stock bubble.

Bubbles, as always, are frightening. And rightfully so. The problem is that you see everyone making money around you and decide to get in on the action. Only, that profitability for investors turns out to be fleeting, and soon you’re stuck with an asset that long ago peaked and is now headed into the gutter. A marijuana bubble could similarly strip thousands of investors of millions of dollars if it pops.

We want to avoid that situation at all costs. Bubbles are one of the most dangerous events to occur on markets for investors. Just think back to the Great Recession caused by the housing bubble, or the crash in the 2000s precipitated by the dotcom rush.

The questions surrounding marijuana legalization have pushed many to wonder about the possibility of a marijuana stock bubble. And for good reason.

First, the state of the legality of marijuana does not look that great in one of the biggest markets in the world—the U.S.—especially when we consider the presidency of Donald Trump.

“Good people don’t smoke marijuana,” said Attorney General Jeff Sessions back in April 2016, when he was still senator of Alabama. “There is more violence around marijuana than one would think.”

White House Press Secretary Sean Spicer has echoed that negative sentiment.

“I do believe that you’ll see greater enforcement,” said Spicer during a press briefing in late February. “There’s a big difference between the medical use … [and] recreational use, which is something the Department of Justice will be further looking into.” (Source: “Marijuana sellers face uncertainty under Trump,” The Hill, March 8, 2017.)

Trump, on the other hand, has been harder to pin down as to where exactly he stands. This has been a hallmark of his administration so far, with a fluid set of positions on a great many differing topics. But, during his election campaign, he seemed decidedly planted in the “states’ rights” group, not dissimilar to his predecessor, Barack Obama.

“I think it’s up to the states,” said Trump in an interview with a Denver television station in August 2016, in response to a question about marijuana sales. “I’m a states person. I think it should be up to the states, absolutely.” (Source: “Brandon Rittiman’s Trump interview transcript,” 9NEWS, August 3, 2016.)

But things have not improved since the administration took power. While Trump hasn’t himself come out against marijuana, Spicer and Sessions continue to rail against the $7.0-billion legal weed industry that is active across many states in the United States.

Eight states have legalized recreational marijuana use, and 29 states have voted to legalize medicinal marijuana. The majority of the U.S., therefore, has access to legal marijuana in one form or another. (Source: “What Jeff Sessions Said About Marijuana in His Attorney General Hearing,” Fortune, January 10, 2017.)

This is great news for those looking to invest in marijuana stocks today, but the future is a different story.

“Marijuana is against federal law, and that applies in states where they may have repealed their own anti-marijuana laws. So yes, we will enforce law in an appropriate way nationwide,” said Sessions in an interview with conservative radio talk show host Hugh Hewitt.(Source: “Trump and his attorney general are freaking out the $7 billion pot industry,” CNBC, March 14, 2017.)

“It’s not possible for the federal government, of course, to take over everything the local police used to do in a state that’s legalized it. And I’m not in favor of legalization of marijuana. I think it’s a more dangerous drug than a lot of people realize.” (Source: Ibid.)

This type of talk is naturally troubling those looking to invest in marijuana stocks.

A saving grace is that Trump has a lot more on his plate begging for his attention than marijuana legalization.

With the increased violence in Syria, the threat of North Korea’s nuclear arms, and the withering ties between the U.S. and Russia, it would make sense to see the president focus more on those geopolitical quagmires versus domestic drug regulations.

Now that doesn’t mean Sessions and others within the administration will forget about weed, but it does at least mean the full focus of the presidency will not likely fall on the weed business.

Is There a Marijuana Stock Bubble? 

A mass crackdown in the U.S. by federal agents in states where the drug is legalized would crush pot sales and stocks. One swift action would create—then burst—a marijuana stock bubble.

In fact, a large portion of marijuana bubble concerns revolved around the shaky legal ground that the product stands on, especially in the United States.

Which is to say that Donald Trump could be marijuana legalization’s worst nightmare, and could devastate the market, were he to bring about stricter enforcement of federal law among states (which he has every right to do through a rule known as preemption).

How to Invest in Marijuana Today 

Weed stock chart

Chart courtesy of StockCharts.com

The weed industry is not in a stable state at the moment. But that hasn’t stopped a whole lot of investors from making a boatload of money off of hype.

Several tickers have jumped on the market and have shown 100%-plus returns over the past 12 months, with 2016 being an especially good year for the top weed stocks.

In fact, it is exactly those types of rapid gains that have led many to question whether there is a marijuana stock bubble.

Take Aurora Cannabis Inc (CVE:ACB) as an example. The company is now up over a mind-blowing 4800% in the past 12 months. Talk about a hot investment and a huge gain for the marijuana penny stock.

Of course, it is exactly these types of wild swings that have many worried about the marijuana bubble. The dotcom crash was similar, with investors jumping into tech companies simply because tech seemed poised to dominate, and not because of what the company actually offered.

As the same time, there are several companies that seem to be especially benefiting from the uptick in marijuana stocks.

Canopy Growth Corp (TSE:WEED, CVE:CGC) not only has a great ticker name, but also is one of the larger and more stable marijuana companies around.

Up five percent since the beginning of the year, and 200% over the past 12 months, there has been good reason to go in on one of the stronger marijuana stocks available.

Another boon to this company is where it’s located: Canada. The country is the closest among industrialized countries to full legalization, with Canadian Prime Minister Justin Trudeau’s Liberal Party running and winning on a platform that featured the legalization of marijuana, including for recreational use.

Now the government has gone back on several of its campaign promises, as politicians are known to do, but the Liberals seem to be keeping this one, with several announcements putting legalization of the drug at some time in 2018, and possibly within the next 12 months.

As such, for those looking to invest in marijuana to access the potential millions of customers and billions of dollars in sales, Canadian marijuana companies will be your best bet.

Other companies, like Organigram Holdings Inc (CVE:OGI) and Aphria Inc (TSE:APH), also show promising outlooks in 2017.

Should You Invest in Marijuana Stocks Today? 

There are options out there for investors hellbent on jumping into the weed market, but the question for most investors who are not maniacally interested in pot stocks comes back to whether there is a marijuana bubble.

The answer to that question is by no means definitive, and relies on marijuana legalization and other factors that could cause massive tremors throughout the industry. A faltering of Canadian legalization, for instance, could thrash marijuana stocks.

And while it’s still too early to judge if a bubble is indeed looming on the horizon for the weed industry, I would put my money on a marijuana stock bubble occurring at some point, versus never taking hold.

The signs of a marijuana bubble are just too prevalent to ignore.

While companies are certainly experiencing huge spurts of growth, ultimately, they’re operating on shaky ground. Their product certainly has demand but, with so many government regulations across the globe having an outsized effect on the product, there’s just too much uncertainty to recommend the drug as a stable investment.

There probably is a bubble looming. That doesn’t mean you can’t get in and make your money, especially in the short term, but I don’t think these stock prices can maintain their strong growth rates for the foreseeable future.

With that in mind, sticking to some of the aforementioned marijuana stocks could at least provide some security versus the potential doom awaiting the marijuana industry.