The Marijuana Industry: The Year In Review
Written by: Jon Slotnick
Without question, 2014 will be viewed as a historical, watershed year for the marijuana industry. Two state legalizations that went into effect in January—coupled with the Federal government’s “stealth” year-end commitment to not prosecute medical marijuana users—marked the dawn of a new era in America’s approach to cannabis. It also sparked widespread investor interest in the sector—already estimated to be a multi-billion dollar business and growing at a quantum clip.
The first major development of 2014 was the implementation of Washington and Colorado’s legalized pot laws in January, which had been approved by voters in 2012. The year also saw states like New York, Maryland, Minnesota, Alaska and Oregon either decriminalize or legalize marijuana use, with related legislation pending in many other jurisdictions. All told, by the end of the year, 23 states had laws in place that allowed the sale of marijuana for medical use at the very least.
In another major development in early December, Congress signed off on a rider in the overall spending bill that prohibits the Drug Enforcement Administration from using funds to arrest medical marijuana patients in states with medical marijuana laws. Although that took place “under-the-radar,” tucked away as part of a much larger bill, it represents a major legal shift in the Federal government’s stance on marijuana, garnering bi-partisan support from what is often a badly divided Legislative branch.
Although a gradual shift in Americans’ attitudes toward pot had already taken root long ago, it wasn’t until 2013 that the majority of public opinion in the U.S. began to shift in favor of some form of pot legalization. According to a Pew poll from that year, 52% of Americans favored legalized pot, while 45% were opposed. It was the first time in more than 40 years of polling that a majority in the U.S. favored its legalization—and marked a dramatic 11% point shift in favor of legalized pot since a 2010 poll.
With the Washington and Colorado laws taking effect, mainstream media got into the act—led by CNN’s Sanjay Gupta, and a 60 Minutes report heralding the benefits of CBD concentrates for otherwise hard-to-manage seizure disorders. The dawn of a new cultural, political and economic approach to what has often been a controversial and misunderstood drug had finally arrived.
All of these developments had a soporific effect on investors at the start of the year, triggering a gold-rush like stampede into “pot stocks,” with the prices of many issues rising in a way that brought back memories of the dot-com bubble. Just like the dot-com boom, however, there was no realistic way that the marketplace could support the giant multiples that were being given these stocks. The rapid gains in pretty much every issue in the sector quickly and predictably went, well, up in smoke.
As you can see from the marijuanaindex pot stock chart, times remain tough for most of the publicly traded marijuana-related companies. Some of those that were heralded as potential industry leaders, like Medbox (MDBX) and Cannavest (CANV), have see their share prices plunge 95% from their winter “mania-highs.” The share prices of older established OTC-traded plays like Greengro Technologies (GRNH), Cannabis Science (CBIS) and Medical Marijuana (MJNA) which rose parabolically for several weeks, also cratered back to their pre-mania levels and lower.
Separating the wheat from the chaff became even harder when penny stock promoters and companies with only the remotest connection to marijuana began to emerge from the woodwork in search of fast money gains. No doubt courageous traders and unscrupulous company officials capitalized, but the SEC began to crack down on some of the most egregious offenders. With the price of pot stocks already in decline, trading halts and misleading information cast a shadow over the industry as a whole.
That’s not to say that some companies aren’t already banking impressive sales numbers and being rewarded by the marketplace. Although the share price of GW Pharmaceuticals (GWPH) is well off its 52-week highs, the stock is still trading at around $67 apiece. The British company has been banking quarterly sales in the $50 million neighborhood, thanks primarily to its proprietary cannabis-derived drug Sativex, an oromucosal spray for the treatment of multiple sclerosis symptoms, cancer pain, and neuropathic pain.
Regardless of how pot stocks performed in 2014, the main thing to remember is that this is an industry in its infancy, with a massive and growing marketplace for a wide variety of applications. Warren Buffett once said, “Time is the friend of the wonderful business, the enemy of the mediocre.” No doubt that adage applies to the emerging companies in the newly minted marijuana sector.
The challenge for investors in 2015 and beyond lies in distinguishing the wonderful from the mediocre. Our challenge at marijuanaindex during the coming year and beyond is to provide readers with the best and most objective information available to help investors cultivate the winners and weed out the losers.
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