The cannabis plant is the most commonly used illicit drug in the United States, as it is estimated that over 17 million Americans use the ‘green stuff’ every year. While it has many other names like ganja, weed, herb, Mary Jane, bud, kush, and pot – to name a few – both users and non-users can agree that it represents a lucrative market for producers and distributors. In fact, it is estimated that the marijuana business is a $100 billion industry, with medicinal revenues accounting for only a small fraction of this total.
Currently, 16 states and the District of Columbia have legalized the drug to be used for medicinal purposes, and two states – Colorado and Washington – are voting on its recreational legality this November. While most investors understand that a comprehensive legalization of marijuana would provide a boom to government tax revenues, it likely that this would also give a boost to some medical and tobacco companies. It is important to remember that it does not matter what your take is on ‘to toke or not to toke,’ as a good investor always considers the opportunities on the economic horizon, so to speak. Below are a few publicly traded companies that may see their stocks be pushed higher – no pun intended – if marijuana is made legal.
Altria Group (MO) As the world’s largest cigarette and smokeless tobacco producer, Altria makes its profits by taking advantage of consumers’ vices. If marijuana were approved for recreational usage in Colorado or Washington this fall, MO would be in a prime position to capitalize on this new customer base. While many companies would have to develop methods to produce the drug, cigarette-makers like MO already have the machinery and management teams; they’d only need to change the active ingredient from tobacco to marijuana and voila. Currently, MO is still a good stock to own no matter what happens with this situation, as it has provided investors with a healthy 7.1 percent return since the start of 2012. Interestingly, MO’s revenues shrank by $300 million last year, so management may be hoping for legalization, even though it will not mention this at shareholder meetings.
British American Tobacco (BTI) This company is best known for its Phillies cigars and catalogue of rolling papers, so its understandable that BTI will benefit from legalization much in the same way as MO. Additionally, the company has already been growing at an 8 percent clip since the recession, as it currently operates in 180 countries worldwide. With a nice dividend yield of 5.7 percent to boot, investors may be wise to investigate this stock further, as its also generated a 14 percent return over the past year.
Altitude Organic Corporation (ERBB.PK) Altitude Organic is a different animal than BTI or MO, as it became the first publicly traded medicinal marijuana company in 2009. With offices in Arizona, California and Colorado, the company is perfectly positioned for the legalization boom that is sweeping the western-half of the U.S. As it is already producing and distributing medicinal marijuana, the company would be perfectly positioned to expand its operations into the recreational business. Currently, shares of ERBB are trading on over-the-counter markets, as the company is too small to have a seat on larger exchanges. Interestingly, its currently classified as a ‘penny stock’ so returns from a legalization boom could be enormous, though investors must be weary about the dangers of penny stock trading.
Cannabis Science, Inc. (CBIS.OB) Another OTC-traded stock, CBIS is a recently established pharmaceutical company, with one catch – all research is done on how cannabis can be used to treat medical conditions ranging from nausea and loss of appetite to more dangerous diseases like MRSA and Crohn’s Disease. CBIS is not the typical medicinal marijuana company, as it produces cannabis in a variety of forms, including as a topical ointment. Thus, any future legalization might not have as large an effect on CBIS as the companies mentioned above, though investors may be wise to consider this stock for its homerun potential. If any cannabis-based cures are developed, shares of CBIS could skyrocket.
Disclosure: This article is in no way an endorsement of marijuana for either recreational or medicinal usage. The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.