Want to Invest in the $6 Billion Marijuana Industry? Here Are 3 Stocks You Can Buy

Want to Invest in the $6 Billion Marijuana Industry? Here Are 3 Stocks You Can Buy

There's no question, legal marijuana is a growth industry, in every sense of the word. Legal cannabis sales reached $6.7 billion in 2016, and experts predict that number may triple now that California has voted to legalize recreational use. Bloomberg forecasts that the industry may reach $50 billion in the next 10 years. Some investors are starting to wonder if there's a way they can make money in this sector.

Well yes there is, or at least there are stocks they can buy if they want to bet on the industry's continued growth. The personal finance site GOBankingRates has assembled a helpful list of publicly traded companies that are partly or completely in the legal pot business.

Investing in equities always carries some risk, of course. But investing in cannabis-related equities is riskier than usual. Both the industry and most of its players are new and don't have much of a track record. They operate in a constantly shifting legal landscape. For example in Washington, where I live, there were both medical and recreational marijuana retailers, operating under separate laws and with different zoning. When the state decided to stop licensing medical stores, many could not switch to recreational because their zoning didn't allow it, and so they had no choice but to close their doors. That's just one example of how you can lose money within the burgeoning cannabis industry.

Also, while medical and/or recreational marijuana is legal in 28 states and the District of Columbia, it remains illegal under federal laws which were generally not enforced during the Obama administration. One of the biggest risks facing the industry today is that President Donald Trump and Attorney General Jeff Sessions may begin enforcing those laws which could conceivably cause the entire industry to shut down. So while there may a big up side to investing in the legal marijuana industry, you could also lose big depending how things play out. Keep that in mind when deciding whether and how much to invest.

Here are some of cannabis-related stocks GOBankingRates recommends. You can find the full list here.

1. AbbVie (ABBV)

AbbVie was spun off from Abbott Labs in 2013 as a biopharmaceutical firm. It has 28,000 employees. Although it's not cannabis-focused, the company already has one cannabis-based drug, called Marinol, approved by the FDA. AbbVie has a market cap of $101.7 billion, a price to earnings (P/E) ration of 16.8, and earnings per share (EPS) of $3.65 as of the end of 2016. In February, it announced a stock buyback.

2. Medicine Man Technologies (MDCL)

Medicine Man Technologies is a consulting and licensing services company that serves cultivators, dispensaries, vendors, and investors. Its co-founder also co-founded Colorado's largest marijuana cultivator and retailer. Medicine Man Technologies has a market cap of only $18 million, and it lost about 2 cents per share last fiscal year. But sales have been growing at a rapid clip, and the company may have real potential.

3. Cara Therapeutics (CARA)

Cara Therapeutics may be a good choice for investors who want to cash in on potential gains from the legal cannabis market but also want to hedge their bets against losses if laws or enforcement become unfavorable to the industry. Cara Therapeutics focuses on medicines for pain and "pruritis" (a.k.a. itching). Although it has one cannabis-based drug in the early development stage, its claim to fame--and the reason its stock ran up from around $6 to around $20 between November 2016 and March 2017--is a drug called CR845 which targets kappa opioid receptors. if that sounds like a lot of gobbledy-gook, the point is that the drug alleviates pain without entering the brain, thus avoiding many of the undesirable side effects of opioid painkillers.

Cara Therapeutics has a market cap of $525 million. It lost $2.10 per share in 2016. But the stock price run up shows a lot of people are willing to bet on the commercial success of CR845 in the near time, and its cannabis based drug in the long term. It could be a good bet.

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