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Shocking Prediction: The Next Dot-Com-Like Boom Could Occur In This Fringe Industry

The U.S. cannabis market is slated to grow 64% to $2.34 billion this year and upward to $10.2 billion in five years, thanks to 20 states making medicinal marijuana legal and Washington and Colorado the first to embrace it recreationally.

According to a study by Colorado State University, some 665,000 residents of the state will use the drug recreationally in 2014, now that they won't be breaking any laws. In terms of quantity, the study estimates that each user will smoke 3.53 ounces this year or 2.3 million total ounces -- in Colorado alone.

Even conservative Canada is joining the party. As of April 1, the country will allow licensed producers to grow medical marijuana on a commercial scale. Health Canada estimates the market could be worth $2.6 billion by 2016. Combined with the U.S., that would create a $5 billion-plus North American boom.

In other words, marijuana is big business and only getting bigger.

Support for legalization is on the upswing as well. From 1969 to 2013, legalization of marijuana supporters grew from 12% to 52%. Those wanting it to remain illegal dropped from 84% to 45% in the period.

And it's no longer thought of as only a culture of pot-smoking hippies from the '60s.

Take Henry Barr, president and CEO of Next Gen Metals (NXTTF) -- a diversified Canadian public company with a focus on investing in legal private and public marijuana companies. Barr has over 30 years of public and private company experience, he's completed 300 option joint venture agreements with companies of all sizes, and he's raised over $250 million to advance projects in 9 different countries.

Barr is only one of many experienced executives stepping into this burgeoning industry, hoping to mentor companies that know how to grow marijuana but lack the savvy to grow the actual business.

To that point, Big Tobacco may play a role as well.

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The foray into e-cigs could be a gateway to incorporating weed as a new brand -- some say they are already being used (not sold) for smoking the drug. Actually selling and distributing "joints" down the road is a possibility, but with federal law still not supporting legal use, mainstream tobacco firms are taking a hands-off approach so far.

The legal marijuana market could grow bigger than alcohol, especially because of its medicinal qualities, of which spirits have none. Its long-term success, however, is contingent on getting the blessings of the federal government, which for now is "looking the other way." (Take a look at what Street Authority's Austin Hatley wrote about marijuana's two legal codes in this article we featured a couple of weeks ago.)

Indeed it looks as though the marijuana industry is closer to getting the green light. With the growth this market is already seeing -- along with the astronomical potential it has if the trend continues -- there's money to be made.

In fact, this trend bears some resemblance to the dot-com era. For better or worse, we're talking about a new born industry with an immensely popular product. The combination of public and government acceptance (at least of the medical marijuana industry), along with proven business executives moving into the space, could be the catalysts that drive what could amount to a new gold rush in coming years.

If you like the idea of investing in the marijuana market, stick to companies that file with the SEC, because there are plenty that don't and go unregulated. Right now, the investable space in this industry is not that broad -- only a handful of companies trade on the market. With that said, here are a couple of companies showing early promise:

GW Pharmaceuticals (GWPRF)

GW Pharma is based in the UK and is developing cannabinoid medications, primarily for multiple sclerosis and cancer. The company has assembled a large in-house team with extensive experience in developing cannabinoids -- medicines containing controlled substances -- as well as plant-based prescription pharmaceutical products.

Its lead product, Sativex is now approved or recommended for approval in 25 countries, such as Norway, Israel, and Austria. Sales of the drug grew 36% in 2013 primarily due to use in Germany and Italy.

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The drug treats symptoms in patients with severe spasms from multiple sclerosis that have not responded adequately to other medication. GW has now entered into five separate licensing agreements for Sativex with Bayer HealthCare in the UK and Canada; Almirall in Europe and Mexico; Otsuka Pharmaceutical Co. Ltd. in the United States; Novartis in the Middle East, Africa, and Asia; and Neopharm in Israel.

More recently, GW received Orphan Drug Designation from the FDA for Epdiolex for the treatment of Dravet Syndrome, and has applied for the same for the drug's treatment of Lennox-Gastaut Syndrome. Each of these syndromes represents rare, severe infantile-onset drug-resistant epilepsy conditions, with an estimated prevalence in the U.S. of 5,000 to 6,000 children for Dravet and approximately 14,000 to 18,000 for Lennox-Gastaut. GW will now move forward into Phase 2 and Phase 3 trials for both drugs.

Although revenue grew in 2013, the company expects a profit loss in 2014. That said, GW showed $58.4 million in cash to close out last year. The company has one of the largest market caps in the industry at $1.06 billion. It trades at $5.34 and is up 79% over three months and 584% in a year.

GrowLife Inc. (PHOT)

Although GrowLife trades at just $0.51, average volume is an impressive 45 million a day, making it a favorite among investors. The $431 million company makes equipment for growing cannabis, and has already sold 150,000 units over 25 years.

The Phototron system, which includes a pod for each stage of growth, is advertised to speed up harvesting by three to four times. PHOT also has a 45% interest in Organic Growth International (OGI) -- and its 25% interest in Canada's CEN Biotech (FITX) -- giving PHOT exposure to CEN Biotech's medical marijuana production facility -- one with a capacity of 1.3 million pounds capable of generating up to $11.25 million in revenue annually for PHOT. CEN Biotech is now awaiting approval from the Canadian government to produce and distribute cannabis for Canadian and International markets.

Interestingly, PHOT just announced its first "G.I.F.T." transaction in Colorado. The GrowLife Infrastructure Funding and Technology Program "allows fully-licensed and compliant growers and dispensaries in well-regulated cannabis markets to spread the cost of infrastructure builds over time." For that, PHOT has partnered with LEAF Aspen, a company in Colorado's popular vacation destination.

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Through its seven retail outlets and online retail stores -- Greners.com and 58Hydro.com -- the company's revenue soared 278% to $2.94 million for the nine-month period of fiscal 2013 (the most recent reported) compared with the same period the year before. Analysts suggest that as many as 30 to 40 stores are slated to open in the next two to three years, with each store averaging $1 million per outlet.

The stock is up 400% over three months and 816% in a year. But if the medical marijuana trend continues like it has been... that could just be the start of this stock's growth.

Risks to Consider: Both of these stocks have experienced huge one-year gains and are susceptible to equally large losses. If you want to take the risk and invest in this arena, do so in small doses, not exceeding a total of 5% of your portfolio.

Action to Take --> With the tailwinds beginning to increase for the marijuana industry, a small investment could turn into windfall returns, especially if states continue to legalize the drug and investors pile in to take advantage. When that happens, you might want to have a stake in this sector.

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