MEDICAL MARIJUANA DISPENSARY
Jeff Chiu, AP
The medical marijuana movement is the strongest it's ever been, with successful decriminalization in several states and strong progress in dozens of others.

With these changes has come greater public awareness of just how huge the medical marijuana business really is. In fact, it's so big that if the crop were grouped with other big-time agribusinesses, it would easily be the most valuable cash crop in the country -- worth more than corn and wheat combined.

With the cultivation and ongoing decriminalization of pot come new -- and legal! -- ways to invest in the trend.

But before you try to cash in on the ultimate cash crop, there are a few things you need to know.

Growing like a Weed

Over the past few decades (think back to the Reagan anti-drug days), cannabis has come out of the basement and all the way into the Oval Office. As the country has gained substantial momentum on other social issues, such as gay marriage, there is an enormous force behind legitimizing marijuana once and for all.

Supporters include an increasing number of politicians, such as Rep. Dana Rohrabacher (R-Calif.), who is pressing Washington to stay away from states' individual marijuana policies.

A cannabis leaf graced the cover of a recent edition of Barron's, a leading, historically conservative financial magazine, which argued in favor of legalization of marijuana, stating that "Legalizing marijuana will hurt drug lords, help cash-strapped states, and ease burdens on police and prisons."

Such arguments in favor of legalization aren't new -- many have touted these arguments for decades -- but what's important is that legalization has become a bipartisan issue. Our country is fighting a war that seemingly nobody except the alcohol and tobacco lobbies (and Michael Bloomberg) believes in.

On a macro level, this would suggest that the business of marijuana is on the brink of a full-scale breakout. So, what's an opportunistic cannabis investor to do?

Your Guide to Pot Players

Before determining whether you should invest or not, let's identify the available publicly traded players.

For what's called a "pure play," there are the companies that actually make cannabinoid products, including Cannabis Science (CBIS), and Medical Marijuana (MJNA). The former is an early-stage company that uses cannabinoids for pharmaceuticals that treat autism, cancer, HIV, and other illnesses. Medical Marijuana makes cannabinoid-based products as well, in addition to servicing the industrial hemp market (an industry that goes well beyond marijuana and pharmaceutical purposes).

These stocks, both microcaps, have had periods of strong gains. But with those gains comes extreme volatility.

If you're looking for a more established, big player in the industry, you'll find it in Medbox (MDBX). Its $400 million market cap makes it the largest company in this space. Medbox does not cultivate or sell cannabis, but it builds the machines that dispensaries use to store the drug. The automated vending machines are specifically designed for "sensitive" drugs, keeping the drugs in tight control and sanitized up until delivery to the patient. They can either be used to diffuse medicine directly to a walk-up patient (with biometric ID), or in assisted living facilities, pharmacies, and other points of distribution.

Besides being the largest player by market cap, Medbox is also one of the few market darlings.
When MarketWatch.com recently recommended the company for investors looking for a pot play, the stock shot up nearly 400 percent almost instantly.

Please Read the Warning Label Before You Inhale

Regardless of the new momentum behind decriminalization (and in some places, recreational legalization) and the equity options available to investors, it's important to recognize that pot stocks are still highly speculative.

Let's start with Medbox's meteoric rise after the MarketWatch mention.

While the run-up might make pot-related stocks even more tempting to investors, what it actually illustrates is the volatility that plagues them. Even Medbox's CEO addressed the outrageous price spike, saying that the economics of his business had not materially changed from one moment to the next. Since Medbox's rocket to more than $200 per share, the stock has settled back down to around the $26 mark.

As for Cannabis Science and Medical Marijuana, both businesses are valued under $150 million (we're talking "penny stock" territory), making their stocks particularly susceptible to market-manipulating hype.

Medical Marijuana has, in the past 12 months, traded anywhere from 2 cents per share to 50 cents If you were to have bought the stock at the beginning of the year, your position would have gained 40 percent in value. But if you had added shares to your portfolio in the last three months, you'd be down 50 percent. Similarly, Cannabis Science is down nearly 30 percent year to date.

Another check mark in the "speculation" category is that there is still strong resistance to letting these companies integrate into the mainstream business world.

President Obama originally campaigned on more progressive laws regarding the drug. But he's adopted a more conservative stance on marijuana businesses. He reappointed Michele Leonhart as head of the DEA, who has used tactics that go as far as threatening criminal prosecution of state employees for implementing dispensary regulations. According to an article in Rolling Stone about the administration's war on pot, federal prosecutors in Washington state sent a letter to Gov. Christine Gregoire "warning that state employees 'would not be immune from liability under the Controlled Substances Act.'"

In Colorado, mainstream banks like Bank of America (BAC), Chase (JPM) and Wells Fargo (WFC) are shunning business from state-licensed dispensaries out of fear of federal prosecution for crimes like money laundering.

Politics aside, on a strict financial basis, the valuations for these companies are out of whack.

Medbox trades at a trailing P/E well over 1,000. Using management's projections for fiscal 2016's EBITDA, the stock's enterprise value trades at a premium of nearly 20 times. If all stays rosy for Medbox, that's not an unheard-of premium for a high-growth company, but "rosy" is not how one would describe the state of the industry.

And then there's the regulatory risk, which is simply tremendous.

The Smoke Hasn't Cleared Yet

In short, we just don't know enough about these businesses yet to make a low-risk investment. Does this mean you shouldn't look into Medbox or Cannabis Science? Not necessarily. But investors would need to treat the position as money taken to the casino -- speculative and expendable.

As time goes on, and politicians continue to be influenced by the more than 70 percent of our nation's population who believe pot should be legal for medical purposes, the marijuana industry will be seen more and more as a "legitimate" business. For opportunistic investors, there will be some incredible investing opportunities.

Pot stocks may someday be the new 3-D printing stocks. For now, though, just chill, dude.

Motley Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days.


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Norman Gates

!! UPDATE - 500% Q4 GROSS REVENUE !!!

Buy some MJNA shares, 2013 High Times Cannabis Cup award-winner for Highest CBD Concentrate in Seattle and Amsterdam, they also hold a majority stake in Red Dice Holdings that licenses the Dixie Elixirs & Edibles brand that makes the medicated truffle that Veteran and The World's 1st recreational cannabis customer Sean Azzariti purchased. Visit Medical Marijuana Inc. (OTC:MJNA) website to find out more about why they are a great public cannabis stock to invest in long-term like: US Government Patent #6630507, KannaLife Sciences, CanChew CBD Gum, US Hemp Oil, Cibaderm, Cannabis Beauty DEFINED, Cibdex, Dixie Elixirs, HempMedsPX, HempVAP and more. MJNA also has about $500k in unrealized gains from their symbiotic relationship with CannaVest (OTC:CANV) and thru HempMedsPX MJNA canvasses the country marketing to distributors and wholesalers their several product lines of legal CBD-rich products and ingredients. HempMedsPX is a MAJOR co-sponsor of the 2014 Grammy Lifetime Achievement Award recipient, Kris Kristofferson's Hemp Aide concert w/ John Trudell which will be on February 22 of this year.

http://cannabidial.com/2014/01/25/meet-your-dividend/

January 27 2014 at 10:21 AM Report abuse rate up rate down Reply
MR NUSSBAUM

To make it legal sounds good but there are many downsides. You cant get a job because companies drug test, plus because it will be easily available more people will use it plus it does disorient your mind. I guess if you dont want to get ahead in life it doesnt matter. Plus there are many studies showing the negative effect it has on your heart and lungs.

June 13 2013 at 4:50 AM Report abuse rate up rate down Reply
ledarac

Still ignoring the Fact. Oil companies know. The Cleanest Burning Bio-Deisel fuel known to man can be derived from Cannibus. That is why they, the Pharma's, tobacco, and newly Reestablished Liquior industries Lobbied so hard to make Marijuana Illegal in the first place.

June 12 2013 at 10:37 PM Report abuse rate up rate down Reply
1 reply to ledarac's comment
h.hughjardon

How many BTUs you talking about led?

June 13 2013 at 12:13 PM Report abuse rate up rate down Reply
eareadjr

I, for one, do not believe anything the federal goverment says about marijuana. Here is what we need from the feds: NO STATE SHALL PROHIBIT THE INDIVIDUAL POSESSION/USE OF OR THE INDIVIDUAL CULTIVATION OF MARIJUANA. This is liberation, not legalization. The State can and will legalize.

June 12 2013 at 10:22 PM Report abuse rate up rate down Reply
Mark

A bank can not accept deposits from a pot distribution company. That is federal law. They would be considered laundering money, (not that don't love to do this) because they do. Buying the stocks would make you at risk for the same confinscation and prosicution as they do with the little people. Bankers will do fine, the rest of us will live with the threat of going to jail. Let this one go, not a great investment yet. Any bank or market that touches the money will be gone, Not them just your money, that's how it works.

June 12 2013 at 10:01 PM Report abuse rate up rate down Reply
purplevyolet

It is time to put a new face on Federal Government.

June 12 2013 at 8:16 PM Report abuse rate up rate down Reply
Lakota

Also when talking about the money sustaining prohibition, we need to talk about Big Pharma and the private prison system. What would we do if we didn't need so much asprin? And someone has to be a criminal to occupy all of those prison beds, those companies paid politicians good campaign donations to keep the status quo.

June 12 2013 at 7:48 PM Report abuse rate up rate down Reply
Lakota

Another interesting business that is growing right now is the e-cigarette/hash pen market. There's a lot of money going into R&D (Altria, RJR, and even The Founders Fund) are coming up with their own products or investing in existing companies. People are using these e-cigarette devices to vaporize cannabis concentrates (waxes, shatters, etc... and I'm one of those folks). If you want to read more about it: http://www.weedist.com/2013/05/build-your-own-cheap-hash-oil-pen-using-e-cigarette-parts-first-use/

June 12 2013 at 7:44 PM Report abuse rate up rate down Reply
mkwrblwsk

Lets just legalize it already and then they can decide how to tax it but knowing the government would probably tax it so high that it might end up being sold in the black market at a cheaper price.

June 12 2013 at 7:31 PM Report abuse +1 rate up rate down Reply
Beci

It would behoove us to consider second and third order effects of decriminalization and, hopefully, legalization of marijuana.

Considering ONLY the marijuana side of the so called, War On Drugs, making pot legal means a series of changes and fairly massive budget cuts, AT ALL LEVELS, in funding to all of the various organizations involved in policing pot-related crimes. A similar but tertiary effect is on shrinks, social workers, drug treatment programs and products. In the same chain, quaternary effects would include social workers and organizations dealing with related issues of child custody, child support, counseling etc. that can impacted by criminal charges and convictions of parents who use pot.

The other side of the coin is that by legalizing pot there would be a whole, new bureaucracy created to regulate the growth, production, distribution and taxation of legally grown pot. Not that some regulation is necessarily bad, some way to insure quality and safety would undoubtedly be necessary, but the same system and mechanisms that regulate tobacco could be used without wasting time and money creating a new one. Thus, keeping at least some of those government chairwarmers from having to suck it up and find actual, honest work.

While legalization, or at least decrim, of pot would grease the slow wheels of justice and clear court dockets by (I'm guessing here) about 50% and reduce jail and prison overcrowding by a similar amount. However, the loss of funding and jobs associated with the criminal justice industry would be harder to make up. Prison guards, wardens, social workers, counselors, builders and contractors and, last but not least, LAWYERS would feel the bite almost immediately and they won't be happy about it.

Even chaplains and religious organizations, in and outside the criminal justice systems, would be affected. If one takes the time to think about it, the effects of doing this are diffused into still more, "lower" levels.

The obvious positive effects of legalizing pot vastly outweigh the negatives. The same can be said for legalizing prostitution but that is a battle for a different day.

June 12 2013 at 5:52 PM Report abuse +1 rate up rate down Reply