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We have heard some version of this question several times in the last few months:

“With the legalization of marijuana spreading in the US, how can we capitalize on that growth opportunity? I mean I don’t participate, but I hear that many people are…”

It is a great question. It would always be nice to be among the first investors in an industry set for exponential growth. Unfortunately, this particular industry carries some pretty sizable risks with it. Most publicly traded marijuana companies trade in the over-the-counter markets, which means they are less liquid, less transparent and less regulated than large equity markets such as the NASDAQ or NYSE. Many of these companies went public through a process called reverse mergers and make heavy use of convertible debt, both of which can lead to shareholder dilution.

Also, let’s not forget that pot is still illegal from the federal standpoint. This means that the industry doesn't have widespread access to the U.S. banking system and faces restrictions on advertising. Finally, the SEC has and continues to warn investors about potential fraud in the industry.

So, given the above we are staying away from the direct marijuana industry as an investment as it stands right now.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.