Marijuana Investing: Overcoming Investor Fear

Investing in marijuana is a daunting prospect for many, and for good reason. The industry is still in its infancy, and the product remains a Schedule 1 drug at the federal level in the US. This means that any investment in marijuana is inherently risky. The companies involved tend to be small, and there is a lack of publicly available information about them. This makes it easier for fraudsters to spread misinformation and take advantage of eager investors.

The fear of investing in marijuana is compounded by the social stigma surrounding the product. For decades, the public has been subjected to anti-weed propaganda, and the impact of these messages persists. Even with legalisation, some people continue to associate marijuana with negative stereotypes.

However, it's important to remember that investing in marijuana is not inherently different from investing in any other industry. With proper research and caution, it is possible to make informed decisions about these investments.

Fear of losing money

Investing in marijuana stocks is a risky business, and there are several reasons why investors might be afraid of losing money in this market. Here are some key points to consider:

The Industry is Still Young and Volatile

Marijuana legalization for medicinal and recreational purposes is a recent development, with the former gaining traction over the last two decades and the latter becoming more widespread in the last ten years. As a result, the industry is still in its infancy, and investors are dealing with a highly volatile market. Young companies are more likely to go out of business, experience wild price swings, and face an uncertain future, especially with marijuana still being illegal at the federal level in the US.

Banking and Tax Challenges

Marijuana businesses often have limited or no access to basic banking services due to the drug's illegal status at the federal level. This forces them to deal primarily in cash, creating security concerns and inhibiting growth. On top of this, pot businesses in the US are bound by tax code 280E, which denies them standard tax deductions, resulting in higher tax payments and less money to reinvest in their business.

Most Marijuana Stocks are Losing Money

The combination of factors above, along with a lack of long-term experience in the industry, means that most marijuana stocks are currently losing money. Even the largest marijuana stock, GW Pharmaceuticals, won't be profitable for years to come, despite having a potentially successful drug in development.

Penny Stocks and OTC Trading

The majority of marijuana stocks are penny stocks, which are inherently risky and often lack transparent financial reporting. Many also trade on over-the-counter (OTC) exchanges, which don't require regular financial disclosures, making it difficult for investors to assess risk accurately.

Industry Fragmentation and Limited Expansion

The marijuana industry is highly fragmented, with too many small businesses for investors to achieve long-term success. While there has been expansion in legalizing medical and recreational marijuana, the pace is slow, and most US states still haven't legalized it. Additionally, without initiative and referendum laws, legislative changes are needed for further expansion, which is a challenging and lengthy process.

In summary, while the marijuana industry shows potential for growth, it is a highly risky market for investors. Those considering investing in marijuana stocks should proceed with caution and be prepared for the possibility of losing money.

Fear of being cheated

The fear of being cheated is a common barrier for new investors. This fear is often rooted in a lack of knowledge about investments and the associated risks. However, it is important to recognise that this fear should not deter individuals from investing altogether. By taking the time to educate oneself on the fundamentals of investing, it is possible to minimise the risks and make more informed decisions. Seeking advice from a financial advisor can also help to address this fear and provide guidance on navigating the complexities of investing.

Additionally, it is worth noting that the legalisation of marijuana has sparked concerns among the public, with some calling for a delay in the implementation of the Cannabis Act. This hesitation can be attributed to factors such as the influence of anti-weed propaganda, social stigma, and miseducation about the effects of cannabis. However, it is important to separate fact from fiction and recognise the potential benefits of marijuana, especially in the field of medicine.

For instance, research has shown that medical marijuana can offer significant advantages in treating various conditions, including PTSD, pain, chronic inflammation, Alzheimer's disease, stress, and cancer. It has also been found to be safer than many pharmaceuticals and traditional substances like tobacco and alcohol. Therefore, it is crucial to move beyond the fear and stigma associated with marijuana to fully explore its potential advantages.

In conclusion, while the fear of being cheated is a valid concern for new investors, it should not be an insurmountable obstacle. By taking the time to educate oneself and seek appropriate financial advice, individuals can make more informed investment decisions and minimise the risk of being cheated.

Lack of financial literacy

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. It involves learning and practicing skills related to budgeting, managing, and paying off debts, and more. It also means understanding and using credit and investment products wisely.

A lack of financial literacy can lead to many pitfalls, such as being more likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-term preparation. This, in turn, can lead to poor credit scores, bankruptcy, housing foreclosure, and other negative consequences.

For example, nearly half of Americans are a $400 parking ticket away from the poverty line, yet a 2022 survey from the National Financial Educators Council shows the average self-reported cost of financial illiteracy was $1,819. When half of US workers make less than $35,000 per year, many are trapped into poverty by their own financial mistakes.

A lack of financial literacy can also result in individuals not understanding the different investment options available to them and how to wisely invest their money. This can lead to individuals missing out on opportunities to grow their wealth and achieve their financial goals.

Furthermore, financially literate people are generally less vulnerable to financial fraud. With the rise of digital banking and online transactions, it is crucial to be able to protect oneself from financial scams and identity theft.

To improve financial literacy, individuals can read books, listen to podcasts, subscribe to financial content, or consult a financial professional. It is also important to start early, as the earlier an individual becomes financially literate, the better off they will be in the long run.

By gaining financial literacy, individuals can make smarter decisions about their finances, avoid common pitfalls, and work towards achieving their financial goals, such as investing in the marijuana industry.

Fear of failure

The fear of failure is a common barrier that holds people back from trying new things, such as investing in marijuana. It is human nature to fear failure, but it is important to remember that failure is not the end of the world. Instead, it is a learning experience.

When it comes to investing in marijuana, the fear of failure can cause people to procrastinate or give up on the idea altogether. However, it is important to recognize that investing is not an option but a necessity. Just as we do not quit our jobs or stop driving due to the fear of failure, we should not let this fear hold us back from investing.

To overcome the fear of failure when investing in marijuana, it is crucial to pick your investments wisely. There are various investment options available, such as mutual funds, fixed deposits, stocks, real estate, and more. Some options, like savings accounts and fixed deposits, are relatively safe with minimal risks attached. On the other hand, high-yielding investments typically come with a much higher exposure to risks.

It is also important to remember that investing in marijuana is not without its challenges. For example, marijuana businesses in the United States face financing struggles and exorbitant tax rates due to the federal illegality of the drug. Additionally, the industry is highly competitive, with an impending oversupply of cannabis in Canada, which may cause legal weed prices to plunge.

Despite these challenges, investing in marijuana can offer significant financial rewards. The marijuana industry has seen tremendous growth, with some of the largest pot stocks by market cap gaining over 1,000% since the beginning of 2016. This growth has attracted investors seeking to profit from the legalization of marijuana.

To mitigate the fear of failure when investing in marijuana, it is crucial to conduct thorough research and carefully consider the risks and potential rewards. Seeking guidance from a certified financial advisor can also help individuals make more informed investment decisions.

Marijuana's illegal status

In the 1930s, Harry J. Anslinger, the head of the Federal Bureau of Narcotics, intensified the battle against marijuana. Anslinger is believed to have been motivated by a desire to promote his newly created department rather than by legitimate safety concerns. A majority of scientists surveyed by Anslinger claimed that marijuana was not dangerous. Nonetheless, Anslinger sought a federal ban on the drug and initiated a racist and xenophobic campaign to achieve this goal. He claimed that the majority of marijuana smokers were minorities, including African Americans, and that marijuana had negative effects on these "degenerate races," such as inducing violence or causing insanity. Anslinger also believed that smoking marijuana would lead white women to have sex with black men.

With the help of a compliant news media and propaganda films like "Reefer Madness" (1936), Anslinger eventually oversaw the passage of the Marihuana Tax Act in 1937, which effectively made the drug illegal across the United States. This Act was later declared unconstitutional in 1969 and replaced by the Controlled Substances Act the following year. Marijuana was classified as a Schedule I drug, alongside heroin and LSD, despite growing evidence of its medicinal benefits.

The enforcement of marijuana prohibition has also been marred by racism. According to some studies, African Americans in the early 21st century were nearly four times more likely than whites to be arrested on marijuana-related charges, despite similar usage rates between the two groups. The federal government's continued prohibition of marijuana, even as more states legalise and regulate it, creates tension and results in harsh punishments for those convicted, ruining lives and destroying families.

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