The multi-billion dollar marijuana industry is fraught with contradictions and risk. With voters and states approving its use, the federal government has remained silent on the matter and continues to crack down on dispensaries. These dynamics have made it difficult for companies to access the market, while simultaneously limiting the options for investors. In this article, we’ll take a look at the market and how investors can capitalize on its growth.
Marijuana Gains Popular Support
There’s little question that marijuana has gained popular support, with 18 states and the District of Columbia having legalized the substance for medical purposes. Colorado and Washington took things even further by legalizing marijuana for recreational use, with Alaska and a few other states expected to put it on the ballot in 2014 and 2016. And in total, the Pew Research Center sees 52% of adults favoring legalized marijuana, which is up 11% from 2010.
The industry’s support is also likely to grow in the future. Nearly half of American adults have tried marijuana and 12% of those have tried it within the last year, while teenagers are smoking more marijuana than ordinary cigarettes, according to Pew. Americans are also growing increasingly concerned with the costs associated with enforcing marijuana laws, with 72% of those surveyed by Pew saying that the costs of enforcement outweigh the benefits.
Commercial Operations Still at Risk
More and more states may be on their way to legalizing marijuana, but the federal government has remained largely silent on the matter. While Obama has suggested that recreational drug users shouldn’t be a priority for law enforcement, regulators have been swiftly cracking down on dispensaries and commercial growing operations for violation of the Controlled Substances Act – even in states that have legalized medical use of the drug.
The Drug Enforcement Administration has sent cease-and-desist letters to dispensaries in Seattle, San Francisco, and many other cities around the U.S. Failure to comply with these notices could result in up to 40 years in jail time, even for landlords that rent to these dispensaries, creating a lot of risk for commercial operators. Most worrisome are cities like San Francisco, where half of all dispensaries received shutdown notices.
Billions of Dollars on the Table
The marijuana industry has been quite successful already, but could see a dramatic boost if federal legislation were enacted. In 2011, See Change Research estimated that the national market for medical marijuana alone hit $1.7 billion. These figures are expected to rise to $8.9 billion over the next five years, which doesn’t include recreational marijuana. It’s this second market that could really drive the industry’s valuation much higher long-term.
Regulators will use the market in order to realize significant tax income that could be used in troubled state budgets, much like cigarette tax revenues have helped fund everything from schools to anti-smoking campaigns. For example, Colorado plans to impose a 25% tax in each of three stages, when marijuana is grown, processed and sold to consumers. But for investors, the marijuana industry has been a risky business given the lack of federal clarity.
Opportunities in the Space for Investors
MedBox Inc. (OTC Markets: MDBX) is one of the most popular companies in the space, providing a medical dispensing system that’s both automated and compliant. While the company hasn’t generated significant revenues yet, it’s market capitalization stands at $355 million.
Another company in the space, Medical marijuana Inc. (OTC Markets: MJNA) has a higher exposure level to illegal activities, and has acted accordingly by dropping more than 70% in the last 5 months with the lack of action by the federal government.
Given the regulatory uncertainty behind companies like Medbox Inc. and Medical Marijuana Inc., investors may want to take a closer look at GrowLife Inc. (OTCQB: PHOT). The company is focused on providing completely legal indoor growing equipment through a growing network of online and brick-and-mortar stores nationwide, making it a relatively low-risk play for investors. Recently, it also began a nationwide advertising campaign and is poised to break even later this year with revenues projected to reach a run rate of $8.0 million.
GrowLife has been strategically expanding as well; they recently opened a new location in New Hampshire and also closed on the acquisition of Rocky Mountain Hydroponics, Evergreen Garden Center, and 58Hydro.com on June 10th of this year. Also, Grassroots research recently released a comprehensive 55-page analysis that has a $0.22 price target for the stock. That represents a 483% increase from the current share price of $0.045.
Investors looking for some exposure to the growing multi-billion dollar marijuana industry may want to take a look at GrowLife as one of the lowest risk options in the space. While there are risks associated with both regulation and micro-cap stocks, the marijuana industry’s enormous opportunity may justify these risks for many investors. For additional information about GrowLife, see the resources below, including the firm’s detailed investor presentation.
More Information:
Company Website - http://growlifeinc.com/
Investor Presentation - http://growlifeinc.com/growlife-presentation-may-2013/
Disclosure:
Except for the historical information presented herein, matters discussed in this release contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Emerging Growth LLC is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. For making specific investment decisions, readers should seek their own advice. For full disclosure please visit: http://secfilings.com/Disclaimer.aspx