Should I Invest in Marijuana Stocks?


Welcome to the topic of the day, “should
I buy marijuana stocks?” And before I give you my answer, notice that
I did, in honor of this video, wear my green tie. However, that doesn’t mean that you should
run out and buy marijuana stocks because the truth is it’s far more nuanced and in general
you shouldn’t be concentrating a large percentage of your wealth in that industry. There’s a host of reasons why. So although there are some states where you
can legally purchase and use recreational marijuana, at the federal level, still not legal. And so if you’re gonna consider buying marijuana
stocks, just keep in mind that there is a tremendous amount of regulatory risk and legal
risk involved. Nobody knows what is ultimately going to happen
with regulation and legality of marijuana. It seems certainly like things are moving
in the direction of making it legal. But who knows if the political climate changes,
the environment in which marijuana stocks operate could certainly change. Many custodians – so the firms where you actually
buy and sell stocks, where you hold your money – won’t even hold them at this point. That may change in the future, but at this
point you need to make sure that where you have your brokerage account you’re able to
buy marijuana stocks. You hear things like The Motley Fool saying,
“Buy this marijuana stock” or “buy that marijuana stock. It’s like getting in on Amazon early.” And maybe it is. But here’s the thing: Marijuana as an industry
could thrive, but any individual stock may not And I’m reminded here of several things: the
auto industry. There have been 3,000 automakers in the U.S.
since the industry’s inception. But most automakers didn’t thrive. So even if you identified the auto industry
back in the 1920s as the industry of the future, you still would have had to figure out which
of the 3,000 auto companies was going to be among the three or four that survived – very,
very difficult to do. Social media: you’ve probably been on Facebook today. Have you been on MySpace today? I doubt it. Just because an industry becomes popular or
becomes ubiquitous it doesn’t mean that every company thrives, and oftentimes, the earliest
adapters aren’t the winners. So if you’re going to invest in marijuana
stocks, first of all, you have to decide, do you believe in the future of the industry. Right? And that involves an honest assessment, not
just of whether or not you like the industry, but what is the true regulatory and legal
framework that it operates in? Second of all, among all the dozens or hundreds
or thousands of marijuana stocks both today and in the future, which are going to be the
handful of winners? Because most industries, as you know, are
dominated by a handful of players. So how to identify those? And third of all keep in mind, this is a very,
very small sector, right? You’re talking about very small companies,
in some cases what we would call microcap. So among the smallest publicly traded companies
out there. So if you are going to buy marijuana stocks,
you have to keep in mind how you position it within a portfolio. Here at Pure we’re not big believers in trying
to identify one particular sector and invest in it because things are often cyclical. Sectors come in and out of favor and usually
when the news is best or the forward prognosis the best for an industry is when it tends
to do the worst – which makes it tough to time out. But even if you are bullish on an industry
and you do decide to take a sector bet i.e. with marijuana stocks, it’s important to size
it appropriately. It certainly shouldn’t be the dominant portion
or the majority of your portfolio, and in fact should be a very small sleeve. I don’t know – 1%, 2% of your portfolio? And it should certainly be in the riskier
portion of your portfolio. So if you have your safe assets, maybe your
cash, maybe your high quality bonds, and then you have your growth assets on top of that
– your diversified stock portfolio, both global international, right? Plus the U.S. – a global portfolio. And then if you have a risk capital, where
maybe you do a little more active trading or something like that. That would be the sleeve where you would own
marijuana stocks, but you’d only be a very small portion if any in your portfolio. But in general, the basis of your creation
of wealth is probably going to come back to the fundamentals: broadly diversified global
portfolios using low cost institutional or index funds. For more on this or any other topic visit
us at PureFinancial.com.

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