Ask Matt: Should investors bet on marijuana?
- Cannibis legalization is spreading to different states
- Most pot stocks are penny stocks trading on lightly regulated marketplaces
- Investors are best off sitting out the pot trend for now
Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com.
Q: Is there money to be made investing in pot?
A: Legalizing marijuana is a trend that's taking hold in the U.S. But despite what investors might think about the development, and if it's good for society, many are looking ways to profit from the trend.
So far, the stock market isn't a great place to play this development. A vast majority of the marijuana companies that have shares that can be bought and sold are penny stocks. Most of the stocks, ranging from GreenGro Technologies to Medical Marijuana, Hemp and Growlife, trade on the OTC Bulletin Board marketplace for less than a dollar a share. These companies do not have to meet any kind of listing standards, such as having a market value of a certain level or have investor safeguards such as an independent board of directors.
Another strike against these stocks is that they're highly volatile and targeted by speculators. It's not uncommon for the stocks to rise or fall by more than 10% in a single trading session. That's what happens when speculation meets a vacuum of information.
There's no question there's money to be made from the proliferation of legal pot usage across the country. And there could be some indirect benefits. Real estate investment trusts that own strip mall property, for instance, might benefit from an influx of these new tenants. But for most investors, it's best to leave this speculative play alone, or risk seeing a part of portfolios go up in smoke.
Follow Matt Krantz on Twitter: @mattkrantz.