Where there’s smoke, there’s usually fire.
The nation’s $5.7 billion marijuana industry, almost as large as the sugar-powered holiday, Halloween, is heating up after a string of legalization victories at the ballot box last week.Voters in four states, including California, the nation’s most populous state, and the world’s sixth-largest economy, approved recreational marijuana. Another four states either removed or rolled back barriers to using pot for medicinal purposes. Analysts now expect the weed business to grow to a $50 billion industry within a decade, which is as “bigly” as the current Wall Street darling Big Data. It’s high times for the herb.
Or is it? The surprise presidential victory of Donald Trump has cast some uncertainty into the equation. His nominee for Attorney General, or the nation’s “top cop,” Alabama Republican Jeff Sessions, can charitably be described as less than enthusiastic about marijuana. Sessions has said, “…this drug is dangerous, you cannot play with it, it is not funny, it’s not something to laugh about… Good people don’t smoke marijuana.” So far, investors are betting the political smoke will clear and Sessions – if confirmed by the senate – will states have their way.
Blue Chips, Green Rush
Meanwhile, Big Pharma is testing a series of marijuana-based compounds that investors hope will be the next blockbuster drug. Arena Pharmaceuticals, Inc. ARNA, a San Diego-based biotech firm, is developing a cannabis-based painkiller known as APD371 that’s being billed as a possible alternative to painkilling opiates that have high rates of addiction and abuse. Another big player, Insys Therapeutics Inc INSY, is testing out a cannabis-based anti-nausea compound. (Interestingly, INSYS donated $500,000 to opponents of an Arizona ballot initiative to legalize recreational marijuana. The Arizona-based company said the measure “fails to protect the safety of Arizona’s citizens, and particularly its children.” The initiative failed.)
Golden State of Mind
Voters in two more large states — Ohio and Texas — may vote next year on marijuana legalization initiatives, as well. But for now, most eyes are on California, which became the first state to approve medical marijuana in 1996. The state’s pot industry could grow to a $6.5 billion behemoth by 2020, according to ArcView Market Research, an Oakland, Calif.-based firm that monitors the legal marijuana market.
While most attention is likely to be focused on companies that grow or use marijuana for new products, investors will also have plenty of opportunities to put their money into less-risky ancillary businesses, such as lighting, security real estate and social media that offer many of the benefits of a growth stock without the risks of a heavy investment into commodities or pharmaceutical development markets.
Investors should also remember that not all pot-related paranoia is groundless; consider Medbox. The West Hollywood, Calif.-based company was created to sell vending machine-like boxes to businesses where medical marijuana could be sold. Its stock, trading around $3 per share in early November 2012, skyrocketed to $205 on November 15 after an encouraging mention by Marketwatch.
While the company issued a statement to dampen the enthusiasm, the stock only dropped to $20 per share. It remained in the double-digits for the next two years before sinking into near-oblivion. The company, renamed Notis Global Inc., said earlier this week that its stock has hit a 52-week high of 6 cents.
It’s currently trading at 0.03 cents per share.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.