The cannabis industry has taken flight in recent years. Countries are increasingly legalizing or decriminalizing marijuana use, causing a spur of growers and sellers, and the growth of spin-off products and industries. In Canada there are already a dozen publicly-traded weed firms, such as Canopy Growth Corp., Aurora Cannabis and Namaste Technologies. Investors generally find marijuana stocks to be attractive plays for capital gains. They are betting that more countries will legalize the substance as it gradually becomes culturally acceptable.
But there is still a lot of smoke in the weed business, according to Alexis Assadi, a financier based in Vancouver. “Last year I met with a lawyer in town who represents various marijuana growers,” he said. “She explained that her clients run mult-million dollar cannabis companies and are looking for expansionary capital, but many of them have criminal histories in connection with their businesses. After all, marijuana had been illegal in Canada for so long. Gangs still dominate part of the growing and delivery process. For that reason, they can’t get financing anywhere – especially not from banks and traditional lenders. I declined to work with her clients because of that fact, alone,” said Mr. Assadi. “How am I supposed to enforce an agreement with someone who might come after me?”
The marijuana business is still part of the criminal underworld in most places, regardless of how innocuous it may be to some. This is a risk that investors must take into account. In fact, there can be serious legal ramifications for purchasing shares in or lending money to a cannabis company. For example, since weed is barred at the federal level in the United States, investors and lenders risk prosecution and/or travel bans in that country. Most spectators view that hazard as benign, although it still exists.
It remains to be seen whether the marijuana business will experience anything like the dot com boom of the late nineties and early 21st century. Enthusiasts believe that widespread legalization or decriminalization is inevitable. Sceptics think that even if weed becomes legal in more jurisdictions, it will be gobbled up by deep-pocketed pharmaceutical firms. Investing in cannabis ventures is still something of a coin-toss. But shareholders and lenders should be aware of the unique sets of hazards that can come with the industry.
To read more on topics like this, check out the business category.