US pot stocks hit highs as Colorado legalizes marijuana

Legalizing recreational weed opens a lucrative market to firms such as makers of equipment used in pot farming and sets the stage for shareholders to reap the billions previously earned by traffickers

By Paul Handley  /  AFP, WASHINGTON

Sun, Jan 05, 2014 - Page 14

Stocks of companies involved in the marijuana industry — medical or otherwise — hit fresh highs on Thursday after Colorado launched the first legal US sale of recreational pot.

Investors took the huge lines outside pot retailers in Colorado as a harbinger of potential growth in the brand-new industry.

With one study predicting a US$10 billion-a-year industry by 2018, hopes are that the legalization of private cannabis use could eventually divert the fortunes reaped by illicit growers and traffickers to shareholders.

However, most of the companies involved remain small and untested, and trade on over-the-counter markets.

The biggest gain on Thursday was by the well-established MediSwipe Inc, which sells transaction processing systems to the medical industry.

In October, the company launched a cooperative in Colorado to work with licensed marijuana industry participants, most of them too small to afford quality financial processing systems on their own.

Meanwhile, MediSwipe shares climbed 69.4 percent to US$0.188 by the end of trading, while GreenGro Technologies, which sells growing systems and equipment popular with pot farmers, spiked 52.3 percent to US$0.67 and GW Pharmaceuticals, which focuses on medicines derived from marijuana, rose 5.7 percent to US$3.30.

MedBox soared 57.2 percent to US$28.70. The company makes high-security storage and dispensing machines for controlled medicines, equipment used by marijuana distributors.

Shares of California-based grower Medical Marijuana Inc jumped 22 percent to US$0.189 on Thursday, while medicine-focused Cannabis Science surged 44.4 percent to US$0.74 and Hemp Inc, which grows industrial hemp and is starting to market hemp seeds as a nutritious “superfood,” gained 50.8 percent to close at US$0.03.

Acknowledging the difficulty of gauging a mostly illegal industry, analysts put the size of the US market — legal and illegal — in the low tens of billions of US dollars a year.

A study conducted last year by ArcView Market Research put the size of the national legal market at US$1.44 billion, a figure it forecast would rise to US$2.34 billion this year, helped in a large part by Colorado’s move.

The largest state market is California, which sells nearly US$1 billion worth of marijuana a year for medical use. The ArcView study said that the entire market has the potential to grow to more than US$10 billion within five years, especially if other states like California follow Colorado’s example.

“Gains will come in the form of increased demand in existing state markets, as well as from new state markets coming online within a five-year horizon,” the research paper showed.

However, pot-related shares have been a mixed bag, with many still in the penny-stock category that lends itself to manipulation.

In August, the US Financial Industry Regulatory Authority issued a warning over possible scams involving marijuana stocks, including trader “pump and dump” schemes, and companies which advertise big gains, but have little real income or experience in the industry.

“One low-priced stock now claiming to be in the medical marijuana business has had four name changes in the past 10 years,” the financial authority said, citing another stock which had just ostensibly crossed over from the coffee industry.