Marijuana Stocks: How to invest in weed — and pros and cons of putting your green in green

ByJames Dennin

Attention, weed enthusiasts: Have you heard of the "green rush"?

That's shorthand for the growing scramble among investors to profit from the an increasingly permissive attitude toward pot in the United States.

The rush began gaining serious momentum after the Justice Department issued a 2013 memo tacitly discouraging local officials from enforcing federal drug laws in states like Colorado and Washington, which had previously passed ballot measures legalizing recreational use of marijuana for adults. 

Known as the Cole memo, it's still largely seen as the main "on the books" guideline from federal authorities as to which laws states with legal pot must actually enforce.

Since then, seven states have also legalized recreational marijuana use — California, Massachusetts and Nevada most recently. 

That's prompted many to start getting into the industry — regardless of whether they live in a legal state.

As Steve DeAngelo — co-founder of The ArcView Group, one of legal pot's biggest investment groups — put it to Fusion, "You don't need to live in Colorado to make jars, you don't need to live there to make software."

Potential risks and rewards for marijuana investors

Unfortunately for aspiring pot-trepreneurs, the recent election victory of President-elect Donald Trump has thrown a wrench in the industry's momentum. 

Trump's pick for attorney general, Alabama Sen. Jeff Sessions, is one of legal marijuana's most outspoken critics. In the 1980s, he went on record as saying he thought the KKK was "OK until I found out they smoked pot." More recently, he called efforts to spread legalization "a tragic mistake."

Michael Zaytsev, author of The Entrepreneur's Guide to Cannabis, told Mic in a phone interview that investing in the industry has gotten a lot riskier in the wake of Trump's win. 

"A lot of the investors I know and speak with regularly are in a holding pattern; they're not putting any money in, they're kind of waiting," Zaytsev said. "It was known that under [President Barack] Obama, the DEA wasn't going to spend a lot of time locking up people for cannabis, especially in legal states."

Under Trump, those assurances aren't quite there. 

But Zac Cohen, a designer and consultant who works with three cannabis brands in a mix of legal and nonlegal states, disagreed with the idea there's been a chill in the industry.

"It wasn't super aggressive six months ago," Cohen said, pointing out that it's long been understood that any product considered illegal on a federal level would have trouble getting capital — aka investments. "Cannabis was always going to be a zig and a zag." 

While there has been talk of organizing the industry to protest Sessions' appointment, Cohen said, some see reason to be hopeful about Trump's stance favoring states' rights and likely hesitance to kill an industry that — by one estimate — has created 18,000 jobs in Colorado alone. 

If you have your heart set on investing in the canna-biz, here are some of the players you need to know — and the important fine print that comes with them.

Most cannabis stocks are penny stocks — meaning they're extra risky. 

Because of the many obstacles even legal pot companies face when it comes to simple practicalities like banking, there's generally not a ton of options for someone looking to invest some spare change in the marijuana industry. 

Most popular pot stocks are what's known as "penny stocks," meaning they trade "over the counter" as opposed to via an established stock exchange. 

Penny stocks are always pretty risky, thanks to lax disclosure requirements.

Investors who purchase penny stocks can be vulnerable to fraud. Jordan Belfort, whose story was featured in 2013's The Wolf of Wall Street, made his ill-begotten fortune unloading penny stocks onto ignorant buyers who couldn't verify the "tips" Belfort's brokers were providing them. 

Weed penny stocks in particular have become even riskier since the election, tweets Alan Brochstein, a certified financial advisor who tracks these types of investments.

The bigger names you may have heard of include Medical Marijuana Inc. — which claims to be the oldest publicly traded cannabis stock dating back to 2009 — and which traded at 12 cents a share as of Tuesday's market close.

Terra Tech is another of the more established penny stocks. Terra Tech was the first company to get the green light from the SEC with a business model that actually involves cultivating and selling marijuana itself. You can currently buy a share of Terra Tech stock for about 27 cents, as of 12:41 p.m. Eastern on Wednesday.

If you do decide to buy a penny stock, says Michael Kay, a certified financial planner, be sure you understand you're speculating as opposed to investing, a practice which has far more in common with playing the slots than it does with your monthly 401(k) contributions. 

"Go in with eyes open to the realization that you could lose your investment," Kay said. "If it works out, consider it good fortune."

In other words, bet your side cash — not your savings.

There are some cannabis stocks on bigger exchanges.  

A more "responsible" way to play the cannabis market is to focus on stocks that have some sort of exposure to cannabis but not "pure play" and are listed on exchanges. ("Responsible" is in quotes because the same rule still applies — you need to be prepared to lose your entire investment whenever you buy stocks.)

To date, there still are only a few pot-related stocks on the exchanges.

One that's been around the longest is GW Pharmaceuticals, a pharma company that uses cannabinoids to create prescription medications. It was founded in 1998 — practically ancient by industry standards — and though it's based in the United Kingdom, it trades on the Nasdaq. 

There's also Innovative Industrial Properties, a real estate investment trust that buys and leases property to marijuana growers. The company went public on the New York Stock Exchange this December, though the stock has not quite lived up to its IPO hype.

You might also look north of the border, where Canada's progressive government is reportedly eyeing nationwide legalization. Canopy Growth Corp. is the largest player and reportedly an industry bellwether. Its stock trades on the Toronto Stock Exchange.

Of course, if you're bearish on the future of legal buds, you could bet against it by putting your money on one of the industries rooting for legal pot to fail.

For example, there's the beverage and spirits industry, which lobbied against legal pot in Massachusetts — implying the sector sees legalization could be a business threat.

Finally, it can't be repeated enough: You're taking a risk any time you play the market, even in more vanilla industries than marijuana. Professional stock traders have far more information than the average investor trading stocks on their laptop, and most attempts to time the market — meaning jumping in and then back out so you earn a ton of money — fail.

In other words, buying low and selling "high" is a lot easier said than done, especially when it comes to cannabis stocks.