Dozens of cannabis companies have sprung up as a result of a wave of legalization and decriminalization. Investors can now bet on them through so-called marijuana stocks—and do they ever. When laws legalizing marijuana in Colorado and Washington state went into effect, shares in many of those companies soared.
But it wasn’t long before they came crashing down. The harsh reality is that if you buy shares in pot stocks today, your investment stands a good chance of fizzling out.
Given that many marijuana companies have dubious financial records and questionable management, and that they’re influenced by con artists, it’s surprising that any investor would be interested. Yet there continues to be considerable interest in the subject on Internet forums and a bevy of activity. Some stocks, such as Cannabis Science, trade more than a million shares per day. Even GrowLife, which went from 50 cents per share to 3 cents before the SEC temporarily halted trading, has an average daily trading volume of 1.6 million shares.
But investors shouldn’t be fooled into thinking that they can handle the risk just because the penny stocks trade for, well, pennies. They also shouldn’t be swayed by the incredible gains the companies have had because their losses were equally incredible. Wait to see whether marijuana is legalized at the federal level. If that happens, there will be legitimate publicly traded companies in which to invest.
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