Uniting States of Marijuana: the country’s evolving laws on cannabis
As the marijuana industry grows with recent legalization in Canada and several U.S. states, most recently Illinois, the trend of investing in cannabis companies is growing as well.
Greensboro-based financial adviser Charles Freeman, owner of AdaptFirst Investments, said investing in cannabis today is like investing in technology in the 1990s — it can be a risky, but has the possibility for high rewards.
Even though marijuana is illegal in North Carolina, anyone can purchase stock in marijuana companies located in legal areas across the country, and the world.
Some companies are large and both grow and distribute cannabis, while others are very small operations focusing on one aspect of the industry.
According to a 2018 report from the Pew Research Center, 62% of Americans think marijuana should be legalized. The group driving that support is millennials, but acceptance has been growing among all age groups.
Freeman’s company estimates the global cannabis market to be $70.83 billion, including recreational use, medical use and industrial hemp.
However, most cannabis-based companies are small and new to the business, creating the risk associated with investing.
Some cannabis stocks have a liquidity issue, making them more volatile. Younger companies have less liquid assets, like cash, meaning that the money investors put in might not be easily returned. These stocks are harder to buy and sell, Freeman said.
The age and size of companies also present a historical issue. There aren’t many years of recorded data on which to base assumptions about the companies, making their future more mysterious.
Tim Hucks, president of Rising Tide Inc. in Chapel Hill, asks his clients if investing in cannabis is something they’re interested in, but doesn’t suggest it for everyone due to the risks.
A way to counteract the risk is by investing small amounts, Hucks said. If a client had a $500,000 retirement account, Hucks said, he probably wouldn’t invest $50,000 in cannabis, but might invest $5,000 instead.
“If a company happens to take off and do really well, you’re getting in on the ground floor,” Hucks said. “If it doesn’t work out, then it’s not changing your lifestyle.”
One of the age groups catching on to the cannabis investment trend is college students.
Jay Livingston, a 21-year-old N.C. State University student, said he started investing three months ago in a cannabis company as a joke with his friends.
“We couldn’t believe weed stocks were actually a thing,” Livingston said.
After doing some research, he realized that the market could be profitable. He found one of the biggest companies, Aurora Cannabis, and decided to invest.
“I think it’s manageable,” Livingston said. “I think the market cap in the coming years is gonna be crazy. You just have to buy in and wait.”
If someone doesn’t want to invest directly in marijuana companies, they can invest indirectly through other companies, Freeman said. For instance, alcohol company Constellation Brands, maker of Corona beer and Svedka vodka, bought $4 billion worth of stock in Canopy Growth, a large Canadian cannabis company.
“Everyone’s trying to find the next Microsoft and Apple,” Hucks said.