WARNING – Don’t Buy Cannabis Stocks!
In a recent article titled “No to Marijuana Stocks, Yes to Weed Investing“, we advised investors to stay well clear of any over-the-counter (OTC) “cannabis stocks” as they are most likely all scams. Don’t believe us? Even FINRA warned specifically against investing in OTC cannabis stocks:
Marijuana Stock Scams Update: In early January 2014, new laws regarding the legalization of marijuana for medical and recreational purposes went into effect in a number of states. At the same time, media coverage of the issue increased, as did investor interest in shares of marijuana-related companies. In some cases, volumes for the stock of otherwise thinly traded, marijuana-related companies increased dramatically—and prices became quite volatile. In May 2014, the SEC issued an alert and accompanying trading suspensions for numerous companies that claim their operations relate to the marijuana industry.
Given the stoned populace that now wants to “invest in weed legalization man”, it’s very easy for these OTC companies to present a compelling case for their “cannabis stocks” given the lack of investing acumen in most of the people interested. Not to mention, they’re probably baked out of their gourds half the time. The truth is, there are many cannabis stock scams out there alongside of legitimate cannabis stocks like Aphria and Canopy Growth which are selling tons of medical marijuana to “patients” across Canada.
A half-baked article was published by Benzinga a few days ago titled “6 Weed Stocks That Aren’t Penny Stocks“. Based on the fact that it was published one day before 4/20, we’re not guessing the author knows that much about cannabis. Here’s an excerpt from that article:
Although investing in stocks that trade off of the major exchanges is always a risky proposition, here are six marijuana stocks that at least (for now) have avoided “penny stock” status by maintaining share prices above $1.
1. GW Pharmaceuticals (NASDAQ:GWPH)
2. Zoned Properties Inc (OTC: ZDPY)
3. AeroGrow International, Inc. (OTC: AERO)
4. Cannabis Sativa Inc (OTC: CBDS)
5. CANOPY GROWTH CORP COM NPV (OTC: TWMJF)
6. General Cannabis Corp (OTC: CANN)
Just because these stock prices are expressed in dollars does not mean they are safe at all to invest in. Any “penny stock” can express their price in dollars by performing a reverse split. If you believe that article and invest in OTC stocks because they’re over $1 a share, you should just roll your money up and light it on fire. The warmth you get from that fire will be of more value than the eventual value of those OTC shares in the majority of cases. A chronic problem that exists on the OTC exchange is that of incompetent management teams and pump-and-dumps. Don’t take a hit by investing in these duds. The jury remains out on GW Pharmaceuticals (NASDAQ:GWPH) which is traded on NASDAQ and has a market cap of $1.8 billion. Canopy Growth is also trading on a major exchange now and is legitimate. Also check out Aphria which we wrote about that is also legitimate and the lowest cost producer we know of.
Cannabis as an investment theme is a very viable one. Even Peter Thiel’s Founders Fund is investing in this space. With decriminalization in effect in the U.S., cannabis is gradually losing the stigma associated with it and investors see this trend. The great team over at CB Insights published their newsletter today wishing everyone a happy 420 day and exhaled the below pictorial which shows just how popular cannabis startups have become:
On a side note, we grew up thinking that 420 originated from a police code for homicide. While that’s partially true, it actually originated from some high school students in San Rafael back in the 1970s. Who knew eh? Anyways, what were we talking about? Oh yeah, investing in weed.
So according to CB Insights, cannabis startups raised over $213 million in 2015 with deals hitting a new high in Q4 2015. With over 50 companies in this space, some of these names are just dank. “Nugg” and “Speedweed” will deliver some buds to your door when you’re craving. “Kind” helps your weed themed business venture to stay in compliance with the law. “CannabisNow” and “Merry Jane” (get it?) provide your weed news as it breaks. Given the target consumer profile, having a memorable name for your cannabis startup is key here.
With at least private 50 companies sprouting up like weeds in the cannabis space, there will certainly be opportunities to invest in the future for retail investors. In the meantime, there are probably 100s of OTC companies, trading in pennies or dollars per share, that claim to be viable ways to invest in the future of cannabis. Don’t invest in them! Instead, just keep reading Nanalyze and we’ll steer you clear of all the traps out there and make sure you’re kept up to date on the first cannabis IPO that gets passed our way along with legitimate cannabis stocks we come across.
Here at Nanalyze, we complement our tech investments with a portfolio of 30 dividend growth stocks that pay us increasing income every year. Learn how to build your own dividend growth stock portfolio in our report on Quantigence - A Dividend Growth Investing Strategy - freely available to Nanalyze Premium subscribers.