Who Will Own the Marijuana Industry If Weed Is Legalized?

For better or worse, the economic and political conversation about the legalization of marijuana needs to be had. Why? Well, if majority rules — and that’s generally what happens in Democracy — then the short answer is: because the people demand it.

Demand may be an overstatement, but data compiled by Pew Research shows that a majority of Americans now think that marijuana should be made legal. Support for the legality of the drug increased 11 percentage points over the past 2 years to claim a 52 percent share of survey participants.

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That said, this conversation may not be relevant to most investors for a few years to come. A national-level agreement on the legality of marijuana is still that far away. Ostensibly, one could seek out which company will have a first-mover advantage and invest in them early, even if this strategy is pretty much a pipe dream given how speculative it is.

As it stands, companies like Medical Marijuana, Inc. (MJNA.PK) or Cannabis Science, Inc. (CBIS.PK) represent the most legitimate business that somebody could choose to invest in. Medical Marijuana stock is trading at the center of a 52-week range between $0.02 and $0.50, and has a market cap of about $184 million.

The concern that many investors have with these micro-cap stocks is that they will disappear overnight. Either the regulatory hammer swings through town and forces them to close shop (if the DoJ decides to take action, equity holders are out of luck), they collapse because of weak fundamentals, or a larger company comes along and gobbles them up under distress. Industries from tobacco to healthcare could put enormous pressure on existing micro-cap marijuana companies.

The idea of marijuana as a medicine begs the involvement of companies like Pfizer (NYSE:PFE), which developed a synthetic form of the drug a few years ago. There’s no telling what a national-level memorandum on marijuana will look like, but Pfizer and its peers already have a tremendous lobbying force in Washington.

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Against this, a micro-cap stock like Cannabis Science, which develops and commercializes cannabinoid-based treatments for cancer, wouldn’t stand a chance. Given the talent at a company like Cannabis Science, they may find themselves pressured into an acqui-hire.

Observers have also suggested that tobacco companies would step up the plate with superior marketing and distribution. Even niche suppliers of the agricultural equipment necessary to grow marijuana could find themselves outgunned by a company like General Electric (NYSE:GE).

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