Market Overview

Remaining Vigilant Is Key For Marijuana Investors

Remaining Vigilant Is Key For Marijuana Investors

This is the fourth and final entry of a series with 420 Investor Alan Brochstein. Read part three here.

The long-term appeal of the marijuana industry has attracted huge interest to the publicly-traded stocks since last summer, especially since Colorado's legal implementation earlier this year.

Medical marijuana continues to proliferate on a state-by-state basis, while the move towards recreational use is just taking hold.

The industry is poised to expand over the next few years, but it's difficult not to be skeptical regarding the publicly-traded companies that currently comprise it. With the exception of GW Pharmaceuticals (NASDAQ: GWPH), the bulk of the sector trades on the OTC Markets (many on the OTC Pink), with an increasing number of companies trading without quotation on the Grey Sheets following suspensions by the SEC.

The 420 Investor community remains vigilant regarding potential investment scams in the marijuana-related stocks. In addition to the steps previously mentioned, 420 Investor has begun to access public records to better understand the backgrounds of the officers and directors of companies in the space.

Related: Marijuana Investors Beware: SEC Warns Traders Of Fraud In The Industry

While the main goal of the background checks are to assure there are no staff felony convictions or evidence of fraud, many other issues arise, including prior bankruptcies and history of litigation.

Still, no matter how much effort one puts into trying to avoid stocks that might come under SEC scrutiny, the possibility of overly aggressive regulatory action that risks suspension followed by lack of quotation suggests that investors should be especially careful.

Prudent investing is always smart, but properly sizing both exposure to the overall market and to positions within the sector is the best defense against suffering outsized investment losses in the current environment.

Investors will likely have better choices in the near future, and, while this is positive for the overall health of the sector, investors may look even more negatively at the least compelling stocks currently trading, especially in light of the risk of further suspensions.

420 Investor recently shared a list of eight companies expected to begin trading soon, including an analytical lab, a security company and a biotech among others.

The big pullback in prices hasn't yet enticed investors back into the sector, as the "who is next" question remains top-of-mind. Trading volumes have plunged as well. Two months ago, it was common to see at least five names a day trade in excess of $5 million in daily trading volume, but now very few are able to enjoy turnover in excess of $1 million. While investors should continue to be careful with their entry into this "Wild West", the shift in sentiment is giving new investors at least a much better opportunity than two months ago.

This is part four of a four part series - click the highlighted links to read part one, part two and part three.

Don't forget to register for the first Annual Cannabis Investor Conference... check it out here!

To learn more about the 420 Investor, click here


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