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Shark Tank's O'Leary: 'Never would I touch' investing in cannabis today

Canada on Wednesday became the first industrialized nation to legalize the recreational use of marijuana — but at least one major investor still isn’t convinced pot stocks are a good bet.

Canadian businessman Kevin O’Leary, Shark Tank host and chairman of O’Shares ETF Investments, said in an interview on Yahoo Finance’s Market Movers on Wednesday that he would “never” invest in cannabis stocks given the product is still categorized as a Schedule I narcotic in the United States.

“Never would I touch this. Never,” O’Leary said when asked if he would not invest in cannabis unless it were fully legalized in the U.S. “When you invest in a Schedule 1 narcotic, you are at risk to breach the RICO statutes of aiding and abetting the transfer of a Schedule I narcotic across state lines.”

A visitor smokes a joint during the first Cannabis Cup where self-cultivation and the quality of the herb are encouraged, in Tlajomulco de Zuniga, Jalisco State, Mexico, on March 18, 2018. ULISES RUIZ/AFP/Getty Images)

The U.S. Drug Enforcement Administration classifies drugs in this category as carrying a “high potential for abuse” with “no currently accepted medical use.” Other Schedule 1 drugs include heroin and ecstasy. Use, sale, and possession of marijuana are illegal in the United States at the federal level, although a patchwork of states including Colorado and Washington have legalized recreational use individually.

As an institutional investor, O’Leary — colloquially known as “Mr. Wonderful” on Shark Tank — said he wouldn’t risk charges of aid and abetting the transfer of a Schedule I narcotic across state lines.

“That is an extremely punitive place to get to,” O’Leary said. “I am not going to look good after 26 years in prison, so the chance that I am going to invest in cannabis is zero.”

O’Leary added that investment in pot stocks is “very much a retail phenomenon,” and that “99% of institutional investors” are not onboard.

I don’t think they’ve faced a lot of risk, from the legal perspective

Retail investors have largely shrugged off legal concerns, Chris Walsh, founding editor and vice president of Marijuana Business Daily, said on Yahoo Finance’s Midday Movers a few hours later.

“Smaller scale investors, I think, are looking up north for an opportunity,” Walsh said. “At least so far, I don’t think they’ve faced a lot of risk, from the legal perspective.”

The legal market for cannabis is expected to explode in Canada over the coming years. By 2020, the legal market for cannabis in Canada will see demand for more than 800,000 kilograms of retail value and about $6.5 billion worth of retail sales, according to a recent report from the Canadian Imperial Bank of Commerce.

An employee with medicinal marijuana plants in the flowering room at Tweed INC. in Smith Falls, Ontario, on December 5, 2016. / AFP / Lars Hagberg (Photo credit should read LARS HAGBERG/AFP/Getty Images)

Investment in Canadian cannabis stocks has ballooned over the past few months, with shares of Tilray (TLRY) spiking than 500% since the company’s initial public offering in July. Peer pot stock Canopy Growth Corporation (CGC) — the New York Stock Exchange’s first weed listing — is up about 97% in 2018. The sharp leaps in share prices have left some investors wary, eliciting comparisons to past bubbles in internet stocks and cryptocurrencies. 

“Whether these are good investments is a whole other matter,” Walsh added.

For his part, O’Leary said that “the big opportunity” for cannabis investing would come if the recreational and medicinal sides of the industry were to split.

“What you want in a space like this and what I was hopeful for as an investor was if you could bifurcate the medicinal side of CBD,” O’Leary said. “There’s a lot of interest around the world in using the molecule as a medicinal product away from the recreational product, which is always going to be controversial.”

The DEA in late September removed some cannabidiol from its most restrictive Schedule I class of controlled substances, reclassifying drugs including CBD with THC content below 0.1% as Schedule 5 drugs, as long as they receive approval from the US Food and Drug Administration.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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