Pubdate: Wed, 12 Feb 2014
Source: Seattle Weekly (WA)
Copyright: 2014 Village Voice Media
Contact: 
http://www.seattleweekly.com/feedback/EmailAnEmployee?department=letters
Website: http://www.seattleweekly.com/
Details: http://www.mapinc.org/media/410
Author: Drew Atkins

THE HIGHS AND LOWS OF THE BUDDING MARIJUANA STOCK MARKET

Along With Legal Weed Comes an Emergent Market for Shares in
Pot-Related Businesses.

Amateur investors are known to get high on hype. And as 2014 rolled
in, they were presented an unusually appropriate source for it.

For years, companies tied to the marijuana industry have been trading
on the over-the-counter (OTC) market-home to so-called "penny stocks,"
where listing standards are almost nonexistent and stock prices can
fluctuate drastically day by day.

Investors could buy shares in companies like MedBox, which sells
fingerprint-activated "weed safes" to retailers. Then there was
Advanced Cannabis Solutions, which connects ganja growers with land
leases, and Growlife, which sells them growing equipment. The list
stretched on.

These "pot stocks" mostly flew under the radar until this past
January, when the nation's attention shifted to Colorado for the
opening of the country's first recreational weed stores. Almost
instantly, pot stocks that had spent December scraping 52-week lows
were skyrocketing, sometimes ascending over a thousand percentage points.

Most of these stocks have since sunk back to roughly their previous
levels. What had occurred was obvious: Rookie investors saw reports of
jam-packed stores in Colorado, decided weed businesses were a fast
track to riches, and threw money at pot stocks like they were going
out of style (which many quickly did).

Coverage of this surge has mostly presented it as a cautionary tale or
played it for laughs. Day-traders must have been stoned to invest in
some of these companies, pundits said, and reasonable people should
stay far away from weed-related investing for a few years until the
market's established.

However, recreational weed shops will soon opening in Washington
state; legislation is before Congress to ease relations between
bankers and pot businesses; and Bloomberg Industries estimates legal
weed could yield $35 billion to $45 billion in sales annually.

Is there really no reason to be bullish on pot stocks right now? Did
the first pot-stock "bubble" yield no more useful lesson than "stay
away"?

Under the roof of Seattle's prestigious Washington Athletic Club,
dozens of respected investors gathered in January 2013 for a business
conference that a decade earlier would've been unimaginable. The
subject was pot, and the company was mainstream: Then-mayor Mike
McGinn gave a speech and a reporter documented the proceedings for a
Fortune cover story. The meeting's purpose: for potential investors to
hear pitches from pot-focused companies.

"For many investors, the end of weed prohibition is no longer a
question," says Troy Dayton, CEO of angel-investor network Arcview
Group and organizer of the meeting. "When you see the President and
possible Republican candidates [for president] trying to beat each
other to the punch to sound reasonable on pot, when you see
legalization's [favorable] poll numbers jump 10 points in a single
year, prohibition doesn't have a long-term future."

Skeptical of most pot stocks, Dayton says the best investment
opportunities remain in private companies-for example, Seattle-based
Privateer Holdings, which raised over $7 million last summer to
acquire pot companies and counts a former DEA agent among its
management. Privateer Holdings' most prominent acquisition so far has
been Leafly, a Yelp-style online review service for dispensaries and
weed strains.

"The stocks out there aren't bad, some of them, but it's dicey
investing overall," Dayton says. "It's important to do your homework."

Someone doing a lot of that homework is Alan Brochstein, an investment
consultant since 1986 and columnist for respected investor website
Seeking Alpha. Last year Brochstein launched 420 Investor, a
professional, for-pay newsletter advising investors on the
opportunities and land mines of the pot-stock market.

Brochstein spends an inordinate amount of time analyzing every pot
stock he can find, of which he counts 42 currently. Only a small
percentage of those companies have solid prospects for success, he
says, but that's normal in a budding industry.

"I was on Fox Business Channel recently, and it's funny, because they
really misrepresented me," Brochstein says. "I was trying to give a
balanced view of the market, and they ran it under the tagline 'Pot
Stocks are Bad' . . . That's the easier narrative, I guess." As he
sees it, the market of pot stocks "isn't really an investor's market
right now. I wouldn't advise Granny to enter it. . . . This is a
trader's market, for people who keep an eye on things and do their due
diligence. If you trade right, there's real returns to be had." Only
two pot-related stocks are currently listed on the NASDAQ: GW Pharma,
a biotech company focused on cannabinoid products and partnered with
industry players like Bayer, and Full Circle Capitol, which invested
millions in Seattle's Privateer Holdings recently. But the rest,
Brochstein says, are on the over-the-counter market.

If playing the stock market is like gambling, the New York Stock
Exchange is Caesar's Palace-full of dealers operating under specific
guidelines and gamblers who know what they're doing. The OTC market,
by contrast, is an underground boxing match in Bangkok-a
borderline-lawless atmosphere and plenty of sketchy characters, and
the people walking out with the most money are usually fixers.

Robert McVay is a lawyer at CannaLaw Group, a Seattle-based firm that
specializes in marijuana-related cases. He gets calls all the time
from people who bought shares in a pot-related company only to find it
was millions in debt or existed simply to separate suckers from their
money.

"Just because a company's listed 'over-the-counter,' it doesn't mean
they're up to no good," he says. "They could be doing it to get
funding, and to get an idea of their market valuation. The problem is
this is a new and exciting market for people, and there's lots of new
investors without much history. They make bad choices."

More bad choices are to come, most likely. 2014 will be the year of
pot-stock bubbles, in Brochstein and Dayton's estimation. The next
will come when Washington state opens its recreational-weed stores,
currently scheduled for this summer. As CNN cameras flock to Seattle's
21 new marijuana stores, another wave of hype will hit.

In November, when more states vote on both medical- and
recreational-marijuana laws, another horde of amateur investors could
enter the market. But these booms and busts are just growing pains,
Dayton says.

As the business of pot becomes more legitimate, so will the people
involved. It's currently illegal for a bank or credit union to deal
with a marijuana grower or retailer. Everything is done in cash.
Legislation recently co-sponsored by Washington state congressman
Denny Heck would change that, and could open the floodgates to big
investments, weed-related business plans that are on the level, and
stocks with real futures, even on the OTC market.

"You're going to see a lot more publicly traded companies in the next
year or two, and more and more, it seems the new stocks are doing
business the right way," Brochstein argues. "This is the beginning of
something huge, right now. And there's something to be said for
getting in on the ground floor, if you do it smart." 
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MAP posted-by: Jo-D