Marijuana sales are legal across 20 states in the US. Source: AP
IT’S been dubbed the ‘green rush’ or ‘dot bong boom’.
Speculative investors looking for the next big thing are piling their money into marijuana stocks, creating a blooming industry described by one analyst as the “single best investment idea of the next decade”.
Minyanville Media CEO Todd Harrison, who makes a living commenting on financial trends, described weed stocks as such back in 2012.
Colorado made recreational use of marijuana legal on January 1. Source: AP
He told news.com.au over the phone from New York that although the industry is risky and volatile, there are three reasons it’s booming right now: it creates tax revenue, lowers crime rates and helps reduce prison overcrowding.
“From an investment standpoint as these companies weave through the maze of capitalism, they’ll start getting on the radars of Wall St banks,” he said.
“I often temper what I say with ‘this is a long-term secular trend’, the meritocracy of the marketplace is going to define who winners are and sinners are.”
Different strains of marijuana are displayed for sale at Medicine Man marijuana dispensary in Denver. Source: AP
The emerging market comes following a wave of legislative change in the US.
While marijuana is already legal for medical purposes in 20 states and Washington DC, it’s recently been made legal for recreational use in Colorado and Washington State.
The move has led to a veritable boom in marijuana-related businesses and products, from edibles to vaporisers, which has raised more than $2 million in taxes in Colorado alone.
US Army veteran Max Bailey is moving to Colorado so he is able to use marijuana for headaches and pain from war injuries. Source: AP
Across the US, the industry is estimated to be worth about $1.5 billion and is expected to grow to $10 billion by 2018, according to a report produced by industry group Arc View.
“There are many derivatives of this trade up and down the food chain,” Mr Harrison said.
“We’re seeing more and more legislation almost daily on medicinal marijuana. It’s going to be interesting to watch how it unfolds.”
Three quarters of Americans think marijuana legalisation is inevitable, according to a Pew Centre report. Source: AP
Investors have also been keen to get a piece of the action, with sites such as The Marijuana Index and Cannabis Financial Network dedicated to tracking the performance of marijuana stocks.
Companies range from the billion-dollar GW Pharmaceuticals listed on the UK stock exchange to “penny stocks” — shares in smaller companies which are often not listed on major markets and can be a much riskier investment.
One investor known only as The Wolf of Weed Street quit his job in order to trade full time and has so far made more than $500,000 off the trend, the BBC reports.
He has more than 18,000 followers online where he tweets market commentary under the hashtag #wolfpack.
This might have to be my main pic pic.twitter.com/bm6aExKvUW
— WolfofWeedStreet (@WolfOfWeedST) March 22, 2014
@WolfOfWeedST we need confidence from u. Any doubts from u is going to create panic selling
— AMJ (@amj1415) April 10, 2014
Who made this picture again? And can u send me the other one? pic.twitter.com/n6bYipLGbM
— WolfofWeedStreet (@WolfOfWeedST) March 28, 2014
Financial analyst Alan Brochstein runs 420 Investor, a hub for people to “capitalise on cannabis” that takes it’s name from an in-joke for marijuana smokers.
He said he stumbled across the idea in early 2013 and decided to start his own business in September last year.
He now provides advice and analysis to more than 2000 investors, most of whom are novices ranging from 20 to 80 years old.
Pot store employee David Marlow, right, helps a customer, who smells a strain of marijuana, at the Medicine Man shop in Denver. Source: AP
“People tend to be rude and hostile [in other online communities] in our community it’s the exact opposite. There are friendships being made, deals being done …. It’s highly engaging. There’re a few issues that come up if they’re polarising around a certain stock but in general it’s very impressive,” he said.
However, like any other nascent investment community, the space is highly volatile and risky, particularly as the drug is still illegal under federal law.
A worker processes marijuana in the trimming room of a dispensary in Colorado. Source: AP
“In this environment you have small companies offering state by state environments. The big companies are not going to take the risk of breaking federal law. If you want to do a brand right now you have to go state by state, you can’t have Pepsi pot,” Mr Brochstein said
“These stocks are definitely risky, they’re penny stocks that’s a primary risk, their systems aren’t in place. There’s fraud, lack of transparency, lots of things can go wrong. That’s not a marijuana stock problem, that’s a penny stock problem.”
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Marijuana stocks favoured by investors in emerging 'dot bong boom'
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