As the tide on marijuana slowly begins to turn, the marijuana stock industry will continue to expand.With this, the marijuana business could be a potentially lucrative business for both the beginner and advanced stock buyer. With most states legalizing the use of marijuana, marijuana selling businesses are given the potential to grow their business. With a number of publicly traded companies, stock buyers have the option to increase their stock by buying shares. However, the marijuana stock industry still has its difficulties. Here are a few things that could affect potential and current marijuana stock buyers and the industry.
Marijuana is Federally Illegal
Despite that the majority of states have made marijuana legal, it is still illegal under federal law. Federal law does not recognize the difference between medical marijuana and recreational marijuana. Federal law treats marijuana as a controlled substance, similar to cocaine.
Patients who use medicinal marijuana for long term ailments would be treated the same as a people using cocaine recreationally. This holds the stock market back as laws could suppress treatment options and stop those from wanting to use marijuana both recreationally and medicinally, resulting in less investing of marijuana stock.
Doctors are also not allowed to prescribe marijuana under federal law. A good portion of the marijuana stock industry is its research into medications. Doctors that feel impeded by the federal law may not want to go into research, affecting marijuana companies that specialize in research.
The federal law also impacts those who are jailed for using marijuana. Cultivating or even possessing a 1,000 kilogram of marijuana is an automatic 10 year mandatory jail sentence. If the marijuana user has a prior drug conviction, the mandatory sentence is bumped up to 20 years, punishing both recreational and medicinal marijuana users alike.
Rampant Share-Based Dilution
A big threat to the marijuana stock industry is not a threat to potential stock buyers but an actual threat to current stock buyers. Because the legal entanglement of marijuana, it is difficult for stocks to have non-dilutive capital. The major difficulty is that banks are not willing to invest for fear of criminal penalties, leading companies who specialize in marijuana to turn to bought deal offerings for capital. Bought deal offerings are selling stock to investors for capital. This causes the investing company to increase its share counts.
The problem this presents to the marijuana industry is that the increase makes it harder for publicly shared companies to generate a strong per share profit. Because of this, 2018 saw an excessive amount of public shares to become diluted. Aurora Cannabis and Auxly Cannabis Group were two of the big companies that had diluted stock. Because banks are unwilling to invest, it causes some companies to sell shares of their stock, which affects stockholders of publicly traded companies. If the marijuana stock industry wants to become stronger, the federal law is going to have to change in order to make banks and potential buyers want to invest.