Mark Twain is said to have remarked that a gold rush was a good time to be in the pick and shovel business. Investors may be able to apply that same bit of wisdom to the growing number of US states that have legalized pot.
Although federal law prohibits the sale or possession of marijuana, Massachusetts lase week joined the ranks of states-18, plus the District of Columbia- that allow its use for people suffering from chronic illnesses such as cancer, HIV/AIDS, multiple sclerosis, and epilepsy. In Washington and Colorado meanwhile, voters have passed an initiative to allow pot for recreational use.
Those changes have kick-started a small but fast-growing medical marijuana industry, estimated to be worth about 1.7 billion dollars as of 2011, according to See Change Strategy, an independent financial-analysis firm that specializes in new markets. In Colorado alone, sales have topped 181 millin dollars in 2010, and the industry employed 4200 state-licensed workers, says Aaron Smith, executive director of the national Cannabis Industry Association, which is a non-profit group that campaigns for marijuana's federal legalization.
In addition to profiting itself from growing and selling marijuana, the industry benefits a slew of other businesses, such as insurers, lawyers, and agricultural-equipment firms, experts say. "Call it the Green Rush" says Derek Peterson, CEO of GrowOP Technology, an on-line retailer of hydroponics-products used in the cultivation of indoor plants-and a subsidiary of OTC stock Terra Tech (OBB:TRTC). "The industry is expanding andthere are all kinds of investment opportunities."
For regular investors looking to get in on the action-and without actually having to sell or grow drugs-thee are several small-cap stocks that stand to gain from marijuana's growing acceptance. Medbox (OTN:MDBX), an OTC stock with a 45 million dollar market cap, for example, sells its patented dispensing machines to licensed medical marijuana dispensaries. The machines, which dispense a set dosage of the drug after verifying patients' identities with a fingerprint, could potentially be used in regular drugstores, as well, says Medbox founder Vincent Mehdizadah. Based in Hollywood California, the company already has 130 machines in the field, and it expects to install another 40 in the coming quarter. "The smart money is on trying to help with compliance and transparency," says Mehdizadah.
Of course, investing in drugs that the federal government still outlaws poses an enormous risk for investors, says Sam Kamin, a lwa professor and the director of the Constitutional Rights and Remedies Program at the University of Denver. In fact, nearly 500 of the estimated 3000 dispensaries have been shut down by the federal government of just closed in the past year, says a spokesman for Sticky Guide.com, an on-line directory and review site for medical marijuana dispensaries-and yet another ancillary businessess that is currently seeking investors.
That said, there are many companies that appear to be betting on a change in federal law. Steep Hill is a quality control laboratory that tests medical marijuana to see if there is any contamination from mold, bacteria, or harmful pesticides. The company, base in Oakland California, is also actively seeking funding of up to 3 million dollars. David Lampach, co-founder and president of Steep Hill expects a federal law legalizing marijuana within the next decade. Cannabis Science, in Colorado Springs Colorado (OTN:CBIS), an OTC stock with a 69 million dollar market cap, based in San Diego California, offers more than 50 ways to consume marijuana, from Dixie Elixer soda to Dixie Chill ice cream, and a range of Dixie Edibles, such as chocolate truffles and crispy rice treats.
While experts say that competiton in the medical marijuana business ie growing fast, they also add that there is still plenty of opportunities for entrepreneurs. For example, Troy Dayton, president and CEO of ArcView Group, an angel investor network for the industry, says that demand has been growing for handheld tobacco vaporizers like those made by Ploom, which charges around $250.00 for its premium "loose-leaf" vaporizer. "There is a rush now to make the ideal vaporizer," Dayton says. "There is still room for a kingmaker in this space."
In the meantime, at least one drug company is directly selling medical marijuana to patients around the world. GW Pharmaceuticals (OTN:GWPRF), based in London, markets Savitex, billed as the worlds first marijuana-based medicine. With a market cap of around 137 million dollars, it is listed on the Alternative Investment Market, a submarket of the London Stock Exchange. Savitex is currently sold as a mouth spray to help alleviate symptoms of Multiple Sclerosis in several countries, including the UK, New Zealand, Germany, Spain, Denmark, and Canada, a spokesman says, and it is currently seeking FDA approval in the US for use as a pain reliever in late-stage cancer patients.
Wall Street Journal
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