Pubdate: Tue, 25 Feb 2014
Source: Globe and Mail (Canada)
Copyright: 2014 The Globe and Mail Company
Contact:  http://www.theglobeandmail.com/
Details: http://www.mapinc.org/media/168
Author: Nicolas Johnson
Page: B5

A GROWING INTEREST

As more jurisdictions legalize its cultivation and use, stocks with
eye-popping gains are appearing. But in cannabis investing, the trick
is weeding out the low-quality stocks

Investing in marijuana stocks may be a growth play for the long term,
if you can stand the risk of getting burned in the short term.

It's not that you can't make money right now. While Canada's S&P/TSX
composite index has risen nearly 5 per cent year to date, at press
time, Hemp Inc. has surged 563 per cent, Advanced Cannabis Solutions
Inc. has soared 423 per cent, Medical Marijuana Inc. has jumped 92 per
cent and GW Pharmaceuticals Plc has gained 35 per cent.

But the legal, public offerings are currently mostly volatile penny
stocks, and, aside from the privately held companies, a vast portion
of the market is illegal. This looks to be changing slowly, as the
move to legalize at least medicinal marijuana seems to be spreading
worldwide.

The share prices have been propelled by the success of Colorado's move
to allow retail sales of marijuana since Jan. 1, and the belief that a
global shift toward greater acceptance of the drug will accelerate.

Although the 2013 World Drug Report by the United Nations says
"cannabis remains the most widely used illicit substance," Uruguay in
December became the first country to legalize its cultivation,
possession, sale and use. In January, France joined Austria, Israel
and Switzerland as countries that have approved cannabis-based
prescription medicines, and new Canadian rules on medical marijuana
take effect April 1.

"Colorado was such a smashing success that people saw this as real,
and we're going to continue to move forward," says Douglas Leighton,
managing partner at Boston-based Dutchess Capital Management II LLC,
whose investments include marijuana companies. "A lot of people were
holding their breath."

The legal market for cannabis in the United States alone could expand
64 per cent this year to $2.34-billion (U.S.), and 700 per cent to
$10.2-billion over five years, according to cannabis industry research
firm ArcView Market Research.

"Business is very good," says Robert Frichtel, president and chief
executive officer of Advanced Cannabis Solutions, which rents out
space to grow marijuana crops. He says he's watching as states
including Massachusetts, Illinois, Florida and New York consider
legalizing marijuana. "We are in the early stages of what's going to
be a very large industry over time."

But most publicly traded cannabis companies are available in the
United States as "pink-sheet," penny stocks with no financial
standards or reporting requirements. Buying and selling their shares
can be complicated. Brokerage analysts don't cover the companies and
most money managers are barred from owning them.

And the U.S. Financial Industry Regulatory Authority warned investors
of potential scams, given the rising interest in the industry.

Tranzbyte Corp., which owns dispensaries and nutrient-capsule makers,
has swung from less than 1 cent (U.S.) to 3 cents this year. Medical
Marijuana, which invests in companies that make chewing gum, shampoos
and lotions derived from cannabis, soared 158 per cent in the first
four weeks of the year, before plunging 21 per cent in the next two.
At press time, it was at 30 cents.

"These are volatile stocks and highly speculative," says Stuart Smith,
a spokesman for Medical Marijuana, which doesn't sell
regulator-approved medicine. "An investment in any marijuana stock in
the United States today could be the most speculative play."

Alan Brochstein, a financial analyst in Houston who runs
www.420investor.com says, "Everybody wants to get rich real quick, and
that's not the best way to look at these companies. ... You need to
think long term." (The "420" in the company's name is slang for marijuana.)

Of the 42 U.S.-traded cannabis-related stocks that Mr. Brochstein
monitors, he says a quarter are probably scams and that he would
consider investing in only eight of them, including breeding software
company Breed-IT Corp. of Israel, investment firm Full Circle Capital
Corp. of the United States, and cannabinoid medicine developer GW
Pharmaceuticals Plc of Britain.

Tweed Inc., one of seven companies with a licence under Health
Canada's new system, is setting up a plantation in Smiths Falls, Ont.,
southwest of Ottawa, and aims for an initial public offering on
Toronto's TSX Venture Exchange in the middle of March, says Bruce
Linton, the company's chairman.

Toronto based PharmaCan Capital, which invests in medical marijuana
companies, aims for an IPO around April 1, says chief executive
officer Paul Rosen.

Both Mr. Rosen and Mr. Linton, as well as Advanced Cannabis Solution's
Mr. Frichtel, are striving to avoid being lumped in with the pink
sheets, and to create a professional industry that respects the
highest standards of reporting and transparency.

"It's a multibillion-dollar industry," Mr. Brochstein says. "These
companies that people can buy right now are just a teeny, tiny
fraction of the industry. They get a lot of focus because people can
invest in them, but the reality is that better companies are going to
be what you want to invest in. It's just a question of when they come."
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MAP posted-by: Matt