Investing in marijuana isn’t as simple as many would have you believe. There are many factors that current and prospective investors overlook. You need to be aware of these factors if you want to turn a profit.
Marijuana is Illegal Worldwide
Despite the statistics above, marijuana remains wholly illegal at the federal level in the United States. It is categorized as a Schedule I drug and is considered to be highly prone to abuse, with no recognized medical benefits. In fact, Uruguay is the only country to legalize cannabis; however, more than two dozen countries have implemented broad medical cannabis use laws, including Canada and Mexico.
There are Ways to Get Financing
Through common stock offerings and bought-deal offerings, financing can be secured. Both methods increase the outstanding share count for a publicly traded company, lowering the value of each existing share of stock.
U.S.-Based Cannabis Businesses Pay Exorbitant Tax Rates
Marijuana businesses in the U.S. that turn a profit face a tax code (Section 280E) that disallows businesses that sell a federally illegal substance from taking normal corporate income-tax deductions. Without these deductions, a weed-based business can face a tax rate of as much as 90%.
There is one approved federal grow facility in the U.S.
There’s currently one approved federal grow facility in the U.S. at the University of Mississippi meaning the supply for clinical testing is limited and comes with a lot of regulations.
The FDA may approve its first cannabinoid-based drug approval
The Food and Drug Administration (FDA) appears to be less than two months away from giving the thumbs up to the very first drug derived from compounds found in the cannabis plant (known as cannabinoids). GW Pharmaceuticals’ (NASDAQ: GWPH) Epidiolex, which is designed to treat two rare forms of childhood-onset epilepsy.
Trump is for states’ rights
Recently, Trump stood behind the right of states to choose whether to legalize cannabis, But we shouldn’t forget he also shut down Israel’s attempt to export medical weed to the U.S. earlier this year.
Few countries are authorized to export cannabis
Canada, and the Netherlands are one of just two countries that actively export cannabis to countries that legalized medical marijuana. In addition, Australia is expected to enter the cannabis exports soon.
Canopy Growth Corp. is the industry’s biggest player
Canada’s Canopy Growth Corp. (NYSE:CGC) announced last month that with recent licensing approvals from Health Canada, it had 2.4 million square feet of licensed grow space. Canopy Growth expects to have 5.7 million square feet for production eventually.
Oversupply is a concern
Canada is expected to legalize recreational weed by this summer; however, this may lead to overproduction. Exports are the main factor here. If foreign countries gobble up all of this excess supply, margins won’t be affected, but if not, oversupply could cause legal weed prices to lower.
Most pot stocks trade on the OTC exchange
Investors should also be aware that most marijuana stocks are listed on the over-the-counter (OTC) exchange, making liquidity a challenge.
Profitability is minimal, in most cases
Cannabis businesses themselves may not be anywhere near as profitable as the cannabis investors.
This article should not be an end to your cannabis research. If you are serious about investing, you must take the time to thoroughly understand the market. Above are just a few of the things that get overlooked when cannabis investments are brought up. With every investment or business venture, you must realize there is risk involved, the list above just highlights some of the pros and cons of marijuana investments.