Time for Marijuana?

Over the past few months we received several e-mails from readers asking about our opinion on the marijuana sector and the companies which grow, process and sell the product. Our advice has always been the same, this is a very young and dangerous sector to invest in.

And we acknowledge that we missed the ‘boom’ in the first quarter of 2014 when many marijuana related stocks doubled, tripled or more. But we’re glad we also missed the ‘bust’ during the past few weeks when those same stocks came tumbling down back to Earth.

The reason we advised people to steer away from them is because we’ve seen the same trend many times before when stocks in an emerging sector catch fire. Many investors believe it’s an opportunity of a lifetime, often aided by ‘Wall Street pros’ claiming it to be a ‘new economy’. But what we’ve learned is that it always takes time for an industry to emerge, weed out the bad actors and then prepare for a lasting, steadier growth cycle.

The Case For Marijuana

Although there is anecdotal evidence that marijuana reduces nausea and stress to cancer patients and that it works as a muscle relaxant and pain reliever, no real scientific studies involving marijuana have been passed by the FDA.

The real reason why many US states are willing to legalize the production, or decriminalize the use, of marijuana is because they have the blessing of a majority of the voters. According to a recent survey, nearly three-quarters of liberals and half of the politically conservative favor legalization.

A second, and even more obvious reason, is… money. Washington state anticipates earnings of $2 billion in five years from a 25% tax levied on producers, processors, and retailers. In Colorado, taxes and fees from the marijuana trade are expected to reach $134 million in 2014.

Of course, not all is rosy in this still controversial sector. A few weeks ago, the U. S. Treasury Department issued guidance reminding these companies it is illegal under federal law to manufacture, distribute, or dispense marijuana. Also many banks won’t process credit card payments or refuse to open checking accounts for marijuana related companies. But we’re convinced that with increasing pressure from the public, and especially the fact that large sums of money can be made, those objections will also become things of the past.

Additionally, since early March, the SEC has suspended seven marijuana-related companies citing concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions.

Cannabusiness Group (OTC: CGBI), Growlife (OTC: PHOT), Advanced Cannabis Solutions (OTC: CANN), Aventura Equities (OTC: AVNE), Citadel EFT (OTC: CDFT), Petrotech Oil and Gas (OTC: PTOG) and Fusion Pharm (OTC: FSPM) have all been brought to a halt. We believe this is a very positive event. The rotten apples have to be removed before the rest of the sector can proceed.

Conclusion

It’s clear the marijuana sector is maturing very fast. The SEC is doing its job very thoroughly by removing the ‘bad boys’. The companies that mean well and act accordingly with their filings will be the survivors.

Many issues are left to resolve, but the trend of growing and distributing marijuana is nearly impossible to stop. We’re going to look out for some good opportunities in the market. Ideas are more than welcome.

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