Medical vs. Recreational Marijuana Investing
As legal opportunities for investing in the marijuana industry continue to expand, investors continue to have questions on where to invest.
According to entrepreneurs in the industry, these are legitimate concerns. Investors should be well-armed with the facts and the risk profiles about the sectors themselves, as well as the companies operating within one or both verticals, and in some cases, in more than one state.
“New investors to the cannabis space often think that there’s a difference between recreational and medical cannabis investing; there isn’t. These investments are one in the same in the public and private markets as most capital is being diverted to ancillary products that service the industry, real estate or the cultivation process itself,” said Jason Spatafora, CEO of marijuanastocks.com.
That is certainly one perspective that is widely shared across the industry from a meta-perspective. In the weeds of decision-making, however, most also concur that investors have to fully educate themselves about the shape of the markets they invest in beyond company specifics or mission. “Certainly there is no questioning the hyper growth to be experienced in the cannabis industry – both medical or recreational,” said Seth Yakatan the CEO of Kalytera. “Although the recreational market might show more immediate profits, and providing that you choose the right company the long term upside is much greater in the medical market over the long run.”
According to Steve Berg, the CFO of O.penVAPE, “One consideration is how investors view risk/reward characteristics between medical and rec. In terms of public opinion, polls show much more support for medical marijuana than recreational marijuana, so medical may have a lower risk profile. There are also far more states that have medical cannabis laws than have rec laws. Regarding which market has more upside is a matter of conjecture, but both have strong potential.”
“Investors should keep in mind public opinion, policy trends, product trends and size of target market. I believe that if California and some of the other states pass rec legislation by popular vote in 2016, the money and legislative writing efforts nationwide will shift toward rec,” said Jeremy Carr, the CEO of BlazeNow. “Rec is the fastest way to provide our nation safe access and end the mass persecution of our citizens for marijuana related crimes.”
That said, “there are no absolutes. Ultimately good investments come down to execution and teams that can operate “ according to Yakatan. “There is no way to predict what will be low risk. Medical investments have an inherent high level of risk given the failure rate of most pharmaceutical and biotech drugs at the U.S. FDA.”
“There is no difference between medical or recreational marijuana investing besides the laws that support their designation state to state. Investors should look at state laws with respect to each category and evaluate risk if they believe there is a difference,” said Spatafora. “My estimation is to invest in the companies that provide services around the cultivation of cannabis.”
Berg also recommended a guideline that investors can use to guide their investment decisions overall. “Another consideration is the Buffet principal of ‘buying what you know,’” he said. “One may have greater familiarity with rec consumer products, or alternatively pharmaceutical products. Prior experience in specific analogous areas may help an investor better judge one sector vs. another. New laws are primary drivers of market growth. During the 2016 election cycle, for example, as many as eight states may have ballot initiatives to approve new rec markets. If these are successful, it may prove to be a large boost for rec market growth and substantial upside for investment in that sector.”