Marijuana Stocks Have a Dark Secret
The Marijuana industry is growing, and investors are beginning to take notice.
According to Cowen & Co., legal Marijuana sales in the US have the opportunity to reach $50-M annually by Y 2026.
Analysts are projecting compound annual growth of 26% in North America through Y 2021.
Few American and Canadian industries are growing as quickly as legal Marijuana and its associated products.
Underlying this sales growth potential the way the public views Marijuana now.
What was once a Taboo topic that the majority felt should remain an illegal substance, is now a drug that 64% of respondents in Gallup’s October 2017 poll believe should be legal for adults to use.
Presumably, the higher the favorability for Marijuana goes, the more pressure will be placed on lawmakers in Washington, DC to alter its scheduling.
Marijuana is still a Schedule I substance, putting it on par with LSD and Heroin.
The result in the Key shift has been incredible gains for Marijuana stock investors.
More than 12 Marijuana stocks now boast market caps in excess of $200-M, that is well out of penny and small-cap market frame, and many have seen their share price expand over the trailing year.
The move has paid off for investors willing to take risks.
But, nearly all Marijuana and Marijuana related stocks come with a dark secret.
Namely, shareholder value is being steadily eroded despite delivering some strong gains over the past couple of years.
What investors have to realize about Cannabis is that in many countries it’s still illegal.
Despite 29 states having legalized medical Cannabis in the US, and 8 states Green-lighting recreational Marijuana, it is fully illegal at the federal level.
In fact, recreational Marijuana is illegal in every country worldwide, butfor Uruguay. This makes operating a publicly traded Marijuana business very challenging.
Most Marijuana stocks are losing money and set to face a variety of challenges, especially if operating in the United States.
For example, US-based companies are unable to take corporate income tax deductions if they sell a federally illegal substance. This forces them to pay considerably higher income tax rates if they are profitable, most are not.
Also, Marijuana businesses have little or no access to basic banking services, they operate on a cash basis posing additional risks.
This means they cannot get traditional lines of credit, a loan, or a checking account from a bank.
Financial institutions in the US answer to the Federal Deposit Insurance Corporation (FDIC), which is a federally created entity, meaning that banks that offer services to Marijuana companies run the risk of federal prosecution or fines at a later date.
Have a terrific weekend.
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