Ask Stacy: Should I Invest in Marijuana Companies?

Man Senior Marijuana
Photo by Ljupco Smokovsk / Shutterstock.com

Welcome to “Ask Stacy,” a short video feature answering money questions submitted by readers and viewers. You can learn how to send in a question of your own below.

If you’re not typically a video watcher, give it a try. These videos are short and painless, and you’ll learn something valuable. But if you can’t deal with video, no problem: Just scroll down this page for the full transcript of the video, as well as some reader resources.

Today’s question is about a topic I never thought I’d address: Investing in companies that grow and sell pot. If you don’t know anything about it, perhaps it’s “high” time you learned. Here’s what I think you should do when it comes to smoking stock deals.

For more information on stock investing, check out “10 Tips for Sane, Successful Stock Investing” and “Ask Stacy: Which Is Best — Individual Stocks or Stock Mutual Funds?” You can also go to the search at the top of this page, put in the word “investing” and find plenty of information on just about everything relating to this topic.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, everyone, and welcome to your money Q&A question of the day. I’m your host, Stacy Johnson. This answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Our question of the day comes from Grace. She asks:

Would you advise anyone to buy stocks in marijuana companies?

Here’s a question I never thought that I’d be answering. And yet, here I am.

As you may know, marijuana is now legal in many parts of the United States. There are companies — including companies that are publicly traded — that you can invest in, so you can actually own a piece of the marijuana market.

When I was growing up, investing in marijuana meant fronting your dealer money, so they could go out and buy pot. These days, it’s a bit different.

Points to consider, Grace:

First, investing in any individual company is risky versus investing in a whole bunch of them through a vehicle like a mutual fund. Another thing to consider: The marijuana industry is new. It’s a fledgling industry, which means it’s likely a lot of players won’t survive. That makes it even riskier.

Then there’s the regulatory environment. I can’t think of any other industry that’s legal in some states, but federally illegal. Attorney General Jeff Sessions isn’t a fan of marijuana. He’s not happy it’s legal in some states, and in the past he has even endorsed the death penalty for dealers. While it’s unlikely pot will be made illegal again, this type of regulatory attitude doesn’t exactly reduce the investment risk.

Warning: If you decide to invest in marijuana, avoid penny stocks: inexpensive stocks that don’t trade on major exchanges. The shares are cheap — hence the name — but it’s an underregulated market, and it’s a very risky market. So, steer clear of anything that might sound like a marijuana penny stock.

I’ve given you reasons not to look at marijuana stocks; now, let me offer a couple of ways to invest I’d be happier with. For example, you could consider tangential, or related, investments. This strategy involves investing not directly into marijuana stocks, but into the stocks of a company that might benefit from the marijuana industry. For example, Scotts Miracle-Gro. Here’s a company supplying growers, thus benefiting from the boom, but not directly tied to marijuana.

Another example is Corbus Pharmaceuticals. They’re developing treatments using cannabis. Here’s an established pharmaceutical company that might benefit from medical marijuana, but won’t get killed if the pot business does.

I hope that answers your question, Grace!

Now, it’s time for our quote of the day. This is from author Stephen Richards:

If the great internet connects us all, then why are so many of us becoming increasingly isolated?

A little food for thought. Have a profitable day, and meet me right here next time!

Got a question you’d like answered?

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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

Got more money questions? Browse lots more Ask Stacy answers here.

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