Buzz about the legal marijuana market is growing fast, but for retail investors none of the plethora of pot stocks on the market looks ripe for harvest yet.
The hype has been building since cover stories in Fortune and USA Today on Privateer Holdings, the nation’s first private equity fund for marijuana, ran within days of each other in 2013. In January 2015 it got a fresh hit from an announcement that Silicon Valley-based Founders Fund, led by PayPal co-founder Peter Thiel, is participating in a $75 million funding round to help Privateer expand. (For more, see: A Primer on Private Equity.)
The organizing principle of Privateer was that the newly legal industry would spawn a subset of service companies that provide information about pot, or financing and insurance services to marijuana companies, even if they didn’t grow the stuff themselves.
There are enough marijuana-focused companies already trading to fill a 27 page printout. There are about 80 in all including AeroGrow International Inc. (AERO) and Zoned Properties Inc. (ZDPY), according to MarijuanaStocks.com. The site says its list may not be complete.
The closest thing to a blue chip is GW Pharmaceuticals (GWPH) which uses the active ingredients in the cannabis plant to synthesize more conventional looking drugs for multiple sclerosis and is working on other diseases. The 17-year-old company is based in England. Its shares are up almost 50% in the last year and its market cap is $1.5 billion. Another attention getting name is Cannabis Sativa, Inc. (CBDS), which hired former New Mexico governor Gary Johnson as CEO in 2014. But the seller of cannabis-infused lotions, creams and food products had less than $2.8 million in sales for the first nine months of 2014.
After that, the pickings get slim fast. (For more, see: Pot Stock Pitfalls to Watch For.)
“It may not be possible to construct a portfolio comprised of marijuana stock “pure plays” likely to yield abnormally high returns until the next big event — the November 2016 elections,” wrote Anthony Cataldo, an accounting professor at Arizona State who looked at the emerging industry for the investing site Seeking Alpha. “Fundamentals, in this sector, appear to be irrelevant — portfolio construction should be focused on legislative event dates, where portfolios are developed, initiated and liquidated, without any long-term hold.”