Cannabis-Related Investments: Is the Grass Really Greener?
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC®:
In the march to legalize marijuana, backyard growers have given way to sleek industrialization, helping make the topic less taboo for investors. The latest in cannabis-related products, medical research application and changing social norms are creating a growing interest in investment opportunities.
What are the different types of cannabis-related investments?
Hemp. Some of the more well-known cannabis-related products have made it in the news, such as hemp and cannabidiol (CBD). Hemp is known for fibers that use less pesticides and require less water for growing than cotton crops. It is also known for creating plastics or bioplastic products as an alternative to non-biodegradable plastics.
CBD Oil. This is a derivative from marijuana or hemp plants and uses abound from pharmaceuticals to personal care products to food additives. CBD oil is especially targeted at epilepsy, pain relief, digestive discomfort, and anxiety in humans and pets.
Medical Research. Though marijuana production and manufacturing are banned at the federal level and by most states, growers in Canada and South America are looking to expand. Research companies are undertaking massive expansion into medical research and future products that seek cures for cancer and other ailments. There is also current exploration for wellness derivatives like dietary supplements, sleep aids, and widespread use in food and drinks.
Speculation. Speculators are hopeful for near future medical and recreational legalization in the U.S., Latin America and Europe. Currently, larger companies have been allowed to trade on the U.S. markets, leaving many investors wondering if they should make the leap into the latest cannabis related investments. There is reason, however, to be cautious.
Criteria to consider for cannabis-related investments
Without measurable financial metrics, the industry is far from established on Wall Street. Last fall, the SEC published a warning for investors to watch out for guaranteed returns, excessive hype and unlicensed sellers. Here are some criteria to use when determining if cannabis-related investments are for you:
Hype. Be wary of relying on fancy names and trade symbols as a benchmark for cannabis-related investing. Understand that both a lack of press releases and overly optimistic ones may signal an issue. Thoroughly vet the business management team, financial standing and business plan.
Reporting. Press releases can help investors determine if there are any issues with litigation, excessive executive compensation, what the company’s share structure looks like, and what their general financial position is. Also helpful to look for, is whether the company makes regular SEC filings. You may be surprised to find out that some of the larger ones do not file.
Scams. Check the background, registration and license of anyone selling cannabis-related investments. Unsolicited offers by phone or over social media should be warning signals.
Lack of intellectual property. Investors often use intellectual property as a benchmark for an investment’s health. Consider what the trademarks are, what goods they are for and what countries they will be used in. See if they are covered by international, federal or state registrations.
Security practices. What practices are in place to safeguard the company’s trade secrets? How is access to trade secrets controlled? Are employees trained on maintaining secrecy and do they sign confidentiality agreements?
Copyrights. Are there any material, logos, or websites subject to copyright registration? If so, have they been made in a timely manner?
Patents. Are there any processes, technologies or designs that have been patented? When do the patents expire? How many patents does the company have? Some pharmaceutical companies are stacking up the patents in preparation for the long approval process for drugs containing cannabinoids.
Threat of litigation. Are there any threats of litigation over copyright and trademark infringement? Be aware that because marijuana is still illegal in the U.S., the company might be criminally prosecuted, which could devalue your investment.
The headlines. Financial, political and even social headlines can create swings in the market and may make investing in cannabis growers too volatile for the more conservative portfolio.
About indirect cannabis-related investments
If the direct grower market seems too volatile for you, there are other ways to invest. Here are a few indirect cannabis-related options for investors:
- Options such as chemicals and fertilizers, infrastructure, structures and equipment necessary for growers
- Manufacturers who are creating THC- and CBD-infused beverages and foods
- There’s even an ETF encompassing diversified cannabis-related stocks
As the market for cannabis-related products and services continues to light up, investors are taking note. Talk to your trusted financial advisor if you are interested in these direct and indirect investments. An advisor can help you determine what the best option is for your portfolio and desired level of risk.
This article is intended strictly for educational purposes only and is not a recommendation for or against cannabis-related investments.
Investments are subject to risk, including the loss of principal. Cannabis industry investments are highly speculative and can have large swings in value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Talk to your financial advisor before making any investing decisions. Past performance is no guarantee of future results.
Kris Maksimovich is a financial advisor located at Global Wealth Advisors 4400 State Hwy 121, Ste. 200, Lewisville, TX 75056. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (972) 930-1238 or at firstname.lastname@example.org.
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