Twenty years ago, California became the first state to legalize medical marijuana. From that foothold, despite being illegal at a federal level, the marijuana industry is working to become part of mainstream America. Because of the potential profits involved, it won’t be long before the industry is a part of Wall Street, too. The industry got a major boost in 2012 when Colorado and Washington both legalized marijuana for recreational use. Many people anticipate the market to grow exponentially with the pending legalization in Canada and even across the United States.
Even with 29 states legalizing medical use and 9 states legalizing recreational use, there is still a cloud hanging over the industry. Current federal laws make marijuana a class I drug, which is the same class as heroin, LSD, and cocaine. The federal government could decide to crack down on marijuana at any time, over-riding the state laws. The tax law also potentially prevents expenses incurred while participating in illegal activity from being deducted on taxes. This means that legal marijuana companies may get taxed on their income rather than their profits, resulting in higher effective tax rates. All of these factors hinder companies from being publicly traded, causing them to be sold as Over-the-Counter stocks, or penny stocks.
Still, even with all these hurdles, the marijuana market keeps forcing its way into the spotlight. From the creation of an index to track the North American marijuana industry to the first marijuana ETF to be included on the NYSE this year, the marijuana market is letting everyone know it’s here to stay. You may wonder what the best way to invest in this growing market is, and that is a great question for your registered CFP®. We aren’t ready to dive into this fledgling industry just yet, but it is very much on our radar. Don’t forget to tune into the Van Wie Financial Hour every Saturday at 10am to hear about more about this and other potential growth areas of our economy.
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