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Marijuana Stocks: Don’t Be a Dope, Risk Is High Says Brown


A Colorado task force is recommending the state boost tourism by marketing legal marijuana to non-residents. The move to approval of pot tourism comes just months after Colorado and Washington became the first states to legalize the sale of pot for recreational use.

Marijuana advocates hope this will help legitimize a massive criminal industry nationwide. While the Feds are grumbling about the States taking it upon themselves to ignore Federal laws, the trend is inexorable; pot is going to be legal and once it is, it will be huge business.

Depending on your, source pot is as much as a $100 billion business in the U.S. Over 5% of adults in America admit to using the drug. Clearly the potential tax revenue from legalizing the drug is huge, but Josh Brown of TheReformedBroker.com, thinks the savings would be even bigger.

According to Brown, the Federal government spends $15 billion a year enforcing pot laws and the states another $25 billion collectively. Further, 89% of those arrested are end users rather than dealers. Add it up and you get $40 billion in savings and as much as $10 billion in tax revenue from controlling distribution on a government level. Suffice it say, the country could use the money.

Public companies dealing in dope have exploded since the votes in Colorado and Washington but it's impossible to overstate the degree of investing risk. "Let's be very careful here," cautions Brown. "Your risk is an absolute loss."

The stocks are tiny, micro-caps and traded on what's called the Pink Sheets, a designation for more questionable stocks. The companies and your investment could literally disappear overnight.

The winners in the pot trade are likely to be names you know already. Big tobacco knows exactly how to grow, harvest, roll and market cigarettes already; a product more widely loathed than marijuana. Companies like Philips Electronics and General Electric (GE) have the resources to challenge patents claimed by indoor growing companies.

There may be a couple of the current pot plays that survive and capitalize on decriminalizing dope, but the odds aren't in their favor.

It's not a slam-dunk in terms of societal cost. Legalization will mean more use and abuse of the drug and is certainly a health risk in ways yet to be known. Regardless, the facts are in pot's favor as Brown sees it.

"If you weigh the pros and cons and recognize the fact that there are probably 60 million people in the country using marijuana already anyway, it becomes a no brainer," he concludes.

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