By Michael Berger
Investors are rarely presented with the opportunity to get in on the ground floor of an industry poised to see incremental revenue growth for decades to come. The last time investors had this opportunity was during the tech boom, which created countless millionaires.
During the last few years, the market has seen a marijuana revolution as countries around the world have reformed their laws and have legalized medical marijuana. Although the United States marijuana industry continues to gather most of the attention, this revolution is happening all around the world.
The marijuana train has left the station and we have seen countries and continents such as Australia, Puerto Rico, Germany, Mexico, Uruguay, Canada, Israel, the Netherlands, and Portugal legalize or decriminalize medical marijuana.
The Next Big Growth Sector
Marijuana legalization may not be a top priority for the United States right now, but change is occurring all over the world and this has created a once in a lifetime opportunity for investors. Although the cannabis sector offers investors a lot of opportunity, it offers even more risk and one must be cautious before entering this market.
Over the last two years, the market has seen a significant increase in the number of publicly traded cannabis companies and as this number has increased, so has the number of cannabis stock promoters, which has made it more difficult for investors to find value.
The stock market continues to serve as the easiest and most efficient way to invest in companies levered to the emerging global cannabis industry. The cannabis industry has seen incredible growth over the last few years and so has the public markets.
New Opportunities Continue to Emerge
In 2014, there were around 70 publicly traded companies that claimed to be levered to the cannabis industry. Today, there are more than 350 and less than 5% trade on a regulated stock exchange like the New York Stock Exchange or Nasdaq. Most of these stocks trade on the over-the-counter (OTC) exchange, which is also referred to as the pink sheets.
Although many of these companies present attractive growth stories, investors must be cautious and conduct thorough due diligence before investing. Stocks that trade on the pink sheets typically do not meet the minimum requirements for most exchanges and do not file important company documents (company financials, insider trading, quarterly earnings, etc.) with the Securities Exchange Commission (SEC).
We continue to prefer companies that are fully reporting and recommend that investors conduct thorough due diligence before investing. From the management team’s track record to the recently announced business initiatives, investors need to look under the hood before buying. Some of the basic guidelines investors should follow include:
1. Call the company and ask to speak with someone from management;
2. Ask if they have audited financials and see how strong the balance sheet is;
3. Request a site visit and a business plan.
Green Is the New Gold
The legal cannabis industry is already a multi-billion-dollar industry and it is not even in the first inning of what will be a multi-decade growth cycle. The growth of the cannabis industry has led to the creation of sectors within it and these sectors are comprised of ancillary businesses, which are levered to the growth of the cannabis industry.
These businesses sell products and services such as specialty soils, climate control systems, grow lights, vaporizers, security solutions, and more. Over 150 years ago the market saw a similar opportunity, and today, investors can capitalize on it.
During the gold rush, most people did not make their fortunes mining for gold. The real winners were people such as Samuel Brannan and Levi Strauss, who sold the ancillary products to the gold miners (i.e. picks, shovels, clothing, etc.).