Cannabis Investment Risk

By January 13, 2015 Advice, News

Cannabis Investment Risks

By: Lisa Rowe 

Just like the various strains of the cannabis plant, cannabis stocks belong to a diverse group of companies. The first thing to consider when investing in cannabis stocks are the risks involved. Some risks are directly associated to investing in cannabis companies such as political and legislative risks. Others are related to the cannabis businesses concerning the type of company itself and the daily operations; the remaining risks are personal.

All investors should begin by assessing their risk tolerance and examining their personal financial goals while also setting firm investment guidelines and clear benchmarks. This can seem overwhelming but, in the long run, is an exercise that is worth more than money can buy. Unfortunately, the scope of this paper does not address the many aspects of personal risk tolerance and investment objects but summaries here by acknowledging the importance of pre-investment planning.

CANNABIS PROHIBITION and the MARIJUANA MOVEMENT

Let’s begin by stating the largest and most obvious risk of investing in cannabis companies – THE PLANT IS FEDERALLY ILLEGAL in the United States. Many of the people who are building this industry have been in prison. Unfortunately, many may still go. And even more unfortunate is the reality that there are people currently serving life in prison for first-time, non-violent, marijuana offences. Let me repeat that last statement once again—there are people currently serving life in prison for first-time, non-violent, marijuana offences. Yes, life behind bars for cannabis.

Within that cold hard fact lies the very heart of the marijuana movement which is the fuel behind the growth of the cannabis industry. The true growth of the cannabis companies comes from underlying progress made by activists in the marijuana movement. The intertwining of politics and pot is one of the largest joker’s cards in the deck and with the cannabis industry literally being built upon the momentum of the marijuana movement these two factors play a large role in cannabis companies and is something that must be considered when making cannabis stock investments.

THE GREEN LINE

When looking to invest in a cannabis stock, one must consider whether the company crosses “the green line”. Another way is to ask, “Does the company actually handle marijuana?” Companies involved in cannabis growing or selling operations such as cultivators or dispensaries are a riskier investment than a company that sells ancillary products.

Ancillary is a term used to clarify whether a company has direct contact with the cannabis plant. Cultivators and dispensaries literally handle marijuana, where ancillary companies never come directly in contact with the plant itself – thus never crossing “the green line”. They provide products or services that support the industry in everything from security and transportation for cannabis cultivators; to packaging and labeling supplies needed to place the product in dispensaries; to financial services and insurance.

Cultivators, on the other hand, are the growing operations that provide cannabis, including hemp, to dispensaries or companies that produce concentrates such as waxes or oils, edibles, tinctures, or other products infused with or constructed from cannabis or a cannabis derivative. Cultivators, are also often referred to as collectives or caregivers, and in some cases, may also grow cannabis on behalf of individual patients depending upon state regulations

Whew!! That seems like a lot already, and we are just starting to scratch the surface. As you can see, while the overall outlook on cannabis stocks is optimistically bullish, picking a winner is much more difficult that it may at first seem.

FOR MORE INVESTMENT ADVICE STAY TUNDED FOR NEXT WEEK’S EPISODE WHERE WE WILL COVER MORE ABOUT THE RISK OF INVESTING IN CANNABIS STOCKS…

Contact Info for Lisa Rowe – cNNbisstockreasearch@gmail.com