E How Accredited Investors Should Follow The Marijuana Trend

The medical marijuana/cannabis industry has become legalized in many countries around the world and that trend is only gaining momentum. While the last year has been an extreme roller coaster ride for most investors in the cannabis market, we can feel confident that this trend is still at the early stages, well established and on an upward momentum longer term.  The rise and fall in stock prices at the end of 2013 and the beginning of 2014 was a result of hot money coming in and out of the sector, illiquid markets and tight share structures.  But what we didn't see during that time is the participation from the institutional and professional money crowd.

To be successful at investing, most sophisticated investors like to follow trends and get invested early while the trend is gaining momentum. Once you have maximum participation from the retail investing crowd, we can be assured the trend for that sector had pretty much peaked and will soon reverse.

Starting the middle of this year, we have seen participation by professional money managers, brokerage companies and accredited investors. These investors usually don’t buy stocks in the open like most retail investors do. Remember they are sophisticated when it comes to investing and they understand the best way to get invested in a longer trend, which is usually via private placements. The professional money managers know to get invested with the best companies at the earlier stages where financing is needed and they can acquire big blocks of shares via private placements and bought deals. 

When it comes to managing funds, these professionals usually stay invested for the longer haul with a 3 to 5 year time horizon. They usually take a longer term view for investing when it comes to secular trends where they can maximize their profits. Their investment strategy is to buy early and exit their positions and sell shares to the retail investor at the peak of the bull market when excitement is extremely high. 

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Disclaimer: Remember, any investment does come with some risk.  We are not professional financial advisors; please consult your financial advisor ...

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Wendell Brown 5 years ago Member's comment

Great post. Does this author have any other related content or do any other authors here cover this industry? Txs.

Joel Santiago 5 years ago Member's comment

I've been curious about investing in marijuana, but still find it too risky. Not enough regulation or information and some of these companies are down right sketchy. Don't you think?

InvestInMJ 5 years ago Author's comment

Yes the industry is still in it's infancy when it comes to investments. The rules and regulations in the US at the federal level still make it difficult to navigate investment opportunities until they become clear or the industry is fully legalized at the federal level. However the risks taken now can and will pay off handsomely if full legalization nationally becomes a reality. The stock prices of many of these companies have come down significantly in the past year making them cheap, however as you suggest, some are sketchy and not worth investing. For now, look for companies who are generating revenues and can grow their business, especially in the vertical markets. There are many private investment opportunities that also look very promising, but they take a lot more due diligence to find and research, but we believe that is where the most promising upside lies.

Harry Sinclair 5 years ago Member's comment

Yeah, it's hard to find reliable articles on this. And not many contributors here are covering it yet..

Bruce Powers 5 years ago Member's comment

Jim Quinn has an interesting post on the Marijuana business up today: www.talkmarkets.com/.../i-told-you-so?post=55870

The Good Doctor 5 years ago Member's comment

Just what the doctor ordered... I was looking to start the new year off with some modest cannabis investments. Looking to get into this new field.

BreakingBad News 5 years ago Member's comment

Thanks, would love to see more on this topic.

Duke Peters 5 years ago Member's comment

Thanks InvestInMJ for a nice article. If you had to recommend only one cannabis stock to invest in, which would it be and why?

InvestInMJ 5 years ago Author's comment

We don't think anyone should invest in just one company, you should have a diversified approach to investing in the Cannabis sector. A mix between growers and vertically integrated companies is probably the best approach. In the new year, we will update our site with some additional companies which are services oriented, they should do really well next year.

Tracey Reynolds 5 years ago Member's comment

How about just a hint or a sneak peek? I know you set the market is no longer "hot" but I still believe there is money to be made here.

Duke Peters 5 years ago Member's comment

Great, can you provide the link to where this info will be posted? Will you post here as well? I'm now following you on TM so I'll get a notification every time you publish an article, thanks.

InvestInMJ 5 years ago Author's comment

We have a watch list on our site which was created in the summer and needs to be updated, but you can view it here...

www.investinmj.com/stock-watch-list-portfolio

We plan on updating it by next week so you may want to look at it then, or subscribe to our free news letter to get additional information on the companies and the sector in general. As we have suggested in the comments below, there is probably no rush to get invested as many of the stocks will remain flat for awhile until we see more excitement come back into the sector. But now is a great time to research the companies and start building a longer term portfolio for a buy and hold.

InvestInMJ 5 years ago Author's comment

At the moment we aren't aware of any tax implications besides regular capital gains to be paid on any normal investment profits. However that is not to say the IRS won't flag investments in growers, similar to being on the DEA's watch list like this article states back in Oct....

finance.yahoo.com/.../...interested-110809730.html

We have spoken to many people and investors in the industry and it would be tough for them to pursue and prosecute investors since many banks and brokers are already raising capital and allowing for investment transactions. Plus there are many politicians and their family members getting involved in the industry, so the chance of any prosecution or investors is slim.

However, I would suggest speaking to your accountant and lawyer first and get legal professional opinions before investing in actual growers. The vertical market for integrated products and services should be fine since they are not actually doing anything with the actual plant.

Joe Black 5 years ago Member's comment

For the retail investor I gather than Canada is still the main option. Are there any American IPOs on the horizon?

InvestInMJ 5 years ago Author's comment

Actually there are quite a few opportunities in the US market, even with growers. We are speaking with 2 companies right now which will be raising capital in the next month. One is in Washington State and the other is in Illinois. There will be no shortages of investment opportunities in every State in the US which as legalized medical MJ. Since the final product is not allowed to be sold across State lines, every state will have the need for growers and dispensaries. There is a huge opportunity for a whole new industry to open up, only if the US Federal Gov't would get on board and the DEA get out of the way.

The money that is being raised via Private Placements are for accredited investors, so the average retail investor won't be able to participate in them. However, there are some companies listed on the OTC in the US and several companies in Canada which are gaining US exposure, they may be the best for retail investors at the moment.

If you are going to invest in this sector, look for companies who are generating revenues or will be in the near future. Stay away from companies who are looking to enter the space and applying for a license and focus on ones that are already licensed to produce.

Regards

Marcy Brown 5 years ago Member's comment

Are there any tax implications/IRS red flags on investing in MJ companies? Worried about the local-vs-federal aspects.