3 Risks That Could Burn You In Marijuana Stocks

marijuanaMarijuana stocks have been some of the best performers over the last few years. With rapidly easing social attitudes toward marijuana and a steady rate of legalization and decriminalization, marijuana looks set to be a major health and consumer product in the coming years.

However, the future of marijuana stocks has a few storm clouds on the horizon. It is important to understand these risks before deciding how much exposure to marijuana stocks you want to have in your portfolio and which stocks you think will likely benefit the most from the growing demand for marijuana.

Increasing Competition

As with any brand new marketplace with low barriers to entry, companies are piling into the marijuana industry in an attempt to dominate this massive potential market. Some companies will survive and thrive, while others will be whittled down by the intense competition on price and quality.

Not everyone can be a winner, and an industry full of new entrants with little experience is bound to have its share of losers. Trying to separate the winners from the losers can be difficult at this early stage, so the intense competition in the burgeoning marijuana industry is a major risk factor for investors.

Federal Crackdown

The rapid legalization and decriminalization taking place is happening at a state and local level. The federal government has so far looked the other way while states and municipalities allow for the growth of the marijuana industry, but that could change at any moment.

A federal intervention into the marijuana industry could see years of legal wrangling, but it could also be enough to scare the budding legal marijuana industry back underground or severely limit its current scope and potential. Until the federal government signs off officially on the same level of tolerance as many states have, a federal crackdown will remain a serious risk to marijuana stocks.

Declining Public Support

The legal marijuana industry has emerged on the back of a growing wave of public support for the decriminalization and legalization of marijuana. This support is based on a growing belief in the general harmlessness of marijuana use and the potential benefits of marijuana as a form of medicine. While this growing sentiment is largely based on the erosion of many early negative myths about marijuana, the jury is still out on a lot of the science that supports the current positive attitude.

A few negative studies could be all that it would take to turn the tide of public sentiment back against marijuana and lead to a rapid rollback of the current legal and regulatory climate. Until a hard base of scientific support for marijuana is established, the risk of a rapid decline in public support will hang over the growth potential of marijuana stocks.

Massive Potential, But Not Without Risks

The potential for marijuana stocks is massive. Marijuana usage could eventually become as widespread as alcohol or tobacco, which could make marijuana stocks global titans of the consumer industry. However, there are still some major risks involved that could see the whole affair fail to take off.

 

Note: This article originally appeared at Modest Money. Ross Cameron is a full time day trader and is the owner of Warrior Trading (https://www.warriortrading.com).  At Warrior Trading, Ross hosts a Day Trading Chat Room and teaches Day Trading Courses to beginner and even advanced traders.

 

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Category: Penny Stocks to Watch

About the Author

The author of this article is a contributor to Modest Money.

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