The Globe and Mail

  Investing and marijuana


Friday, September 26, 2014

So, you are a Warren Buffett adherent and you believe in investing in what you understand. The question arises, as the toke on the reefer slowly oozes through your brain, "What do I understand?" Then, a brainwave strikes. "Gosh darn it, I comprehend marijuana, and if ever there was a growing industry, this is the place to be." You butt out the doobie and push the cerebral cortex into (slow) motion.

Now, you are no neophyte investor. Back in 1999, as pretty much a rookie, you bought into the new paradigm of technology. And after some significant gains that you didn’t take off the table, your investments cratered. Not quite learning from the experience, as gold approached $1,850, you believed the "bugs" and thought the sky was the limit.

Wanting the super-sized gains, you ventured into the venture exchange, chasing some of the diminutive up and comers. You suffered as the small fry became smaller, many nonexistent.

But this one is different, right? Marijuana is an established market with plenty of growth potential. Companies can go public and be the instantaneous leaders in their field. You like that. It makes you feel warm and fuzzy.

Your critical thinking suggests many ways to avoid blowouts. One idea you remember from the tech bubble was how many mining companies reinvented themselves as tech outfits as the millennium approached. A major red flag, therefore, would be outfits converting from the beaten-down resource sector to chase the new gold in pot.

Research leads you to Papuan Precious Metals Corporation. This company is chasing minerals in Papua New Guinea. Back in 2007, it traded as high as $2.40. Today, it is around a nickel. What a downer, man!

But wait, the company’s new subsidiary, Pioneer Pacific Financial, is purchasing a medical marijuana dispensary in Colorado. Maybe this will be the Rocky Mountain high!

Another venture company in the field is Tweed Marijuana. Trading for a mere penny in the past 52 weeks, it soared to $4.75. Talk about getting elevated! Coming back to earth, it settled to its current level of $2.35. Not bad at all for those who got in early.

The US has many more offerings for investors who want to trade in this field. Naturally, most are penny plays trading on the minor-league exchanges. The vast majority will not make shareholders a penny, but rather will line the pockets of their owners. As with purchasing illegal drugs, buyers must be wary that stock markets also have quality control problems.

We did a review of numerous enterprises in this field. It appears that many garner incredible excitement when they list and shortly thereafter. Then they implode as the buzz wears off.

Investors would be wise to remain nimble, keep their greed in check and avoid the urge to buy and hold. One strategy to consider is to look for five- and 10-baggers that can be purchased for under a quarter. The winners will likely more than counterbalance the ones that do not achieve liftoff.

One thing that we like to do as part of our due diligence is to attend corporations' annual general meetings. Sometimes, these outfits give away freebies of their products. In this sector, samples might provide some wonderful memories, if one can remember.

It is evident that the war on drugs has been an abject failure. "Regulate and tax," we say, as is done with booze, tobacco and gambling. After all, if the survey is correct, more kids in Canada smoke pot than anywhere else in the world.