Investing in the “Green Rush”

August 5, 2017

As legalization continues to spread across the nation, many investors are beginning to see cannabis as a legitimate investment opportunity.

After last year’s double-digit gains, investment in public marijuana company stocks is quickly gaining steam. Although these stocks carry inherent risks that leave many investors uneasy, others have decided to test the waters early to be a step ahead in the event of legalization at the national level.

San Francisco based venture capital firm Founders Fund is just one of the many private firms to enter into the fray. Lead by Paypal co-founder Peter Thiel, Founders invested millions into Privateer Holdings, a private equity firm in Seattle backing several marijuana startups. This aggressive cash infusion has caused many other mainstream private investors to take notice of this growing yet complex multi-billion dollar marketplace.

While private funders have taken their time getting involved in this burgeoning market, it was the retail investors who were the first to take on this high risk, high reward industry. By investing in dozens of small, over-the counter penny stocks and micro-cap startups, retail investors were able to reap the benefits long before the rest of the investment community took notice.

Is a shakeout inevitable? According to Scott Greiper, president of Viridian Capital & Research, the answer is yes. In an interview given to CNBC earlier this week, Greiper stated, “There’s going to be a shakeout in the public companies.” Greiper’s New York-based firm services the marijuana sector, including its stock trade.

“It comes down to who's investing my money and running the company,” he went on to say. “The most important challenge for this industry is the emergence of professional, seasoned executives, operators and board members running both public and private companies.”

Since the marijuana industry is often volatile, many investors are apprehensive about  investing their money in public companies. As a result, many industry experts recommend investing in the industry’s ancillary businesses such as biotech, consulting, real estate and software companies.

This strategy has worked out quite well for Cheryl Shuman, founder of the Beverly Hills Cannabis Club. After getting burned by a pump-and-dump penny stock scheme, Shulman vowed never to invest in a publicly-traded cannabis company again. Instead, she invests her money into private licensing, media and real estate. Despite being burned by the penny stock scheme, Shulman continues to be an advocate for marijuana legalization and attending every conference or hearing that she can.

Billed as "the definitive authority on connoisseurship for discerning cannabis consumers.” Shulman encourages investors to go to industry expos and events such as Weedstock and CannaCon and “get to know the people behind the companies.”