One of my friends recently asked me what I thought of marijuana stocks and if they would be a good investment. It was a good question since marijuana is now legal in some American states and the market will probably be expanding quite rapidly, especially if other states follow suit and legalize it. There’s definitely money to be made, but my answer was, “No, not now” and here are my reasons:
1. There likely isn’t that many (any?) publicly traded companies yet. There are ways to invest in these kinds of companies outside of the traditional methods, but I like the security of companies that are listed on one of the major exchanges. They have to conform to basic accounting and disclosure principles, which companies outside of these exchanges do not.
2. This industry is totally dependent on the whims of the US government and public opinion. Sure, industries like oil/gas and pharmaceuticals are also dependent on laws and regulations of the government but to a much lesser extent than the marijuana industry.
3. I only invest in established companies that have a history of paying increasing dividends. Companies in this industry would definitely not fall into this category.
4. I have no idea whether these new companies will be profitable, or not. My guess is that they will but it’s still too early to tell.
5. I stay away from get-rich quick schemes and this seems like one of them. Sure, you could get lucky and double, or triple your money in a very short time but you could also lose it all just as easily. I like to sleep well at night and “invest” instead of “gamble.”