Here’s Why Investing in Marijuana May Not Be as Risky as You Think

Justin Sullivan/Getty Images

Economically, there’s never been a better time to invest in the marijuana industry. But despite the huge potential for profit, investors are often confused or hesitant to risk involvement in the legal medical marijuana business, and with understandable reason. The industry is a bit of double-edged sword. On the one hand, experts say the industry is poised to become wildly profitable, especially as legalization begins to seem more a matter of “when” than “if”; on the other hand, with marijuana still illegal at the federal level, it’s an industry with too many risks to justify the potential profits for many investors.

In recent weeks, though, it seems that the potential economic benefit of a legalized medical marijuana industry is beginning to tear down some of the political barriers which have, in the past, kept investors out of the game.

At the end of May, Congress made a decision — bipartisan, no less – that may change investors’ outlook on the marijuana industry. In a monumental move, Congress ruled to prohibit the Drug Enforcement Agency from conducting raids on medical marijuana patients as well as the growers and businesses that provide to them in states where the substance is legal.

It’s kind of a big deal. MSNBC notes that the House has never passed a measure that restricts the jurisdiction of the DEA before. The decision, an amendment which required 218 votes in order to pass, is a rare bipartisan decision in an era when it seems Congress can’t agree on anything.

The clincher? Money. The DEA’s raids on medical marijuana providers are  – or rather, were – funded by tax dollars. Simply put, Congress decided that it’s a waste of time and money to raid providers in states that have already decided to legalize pot. It’s important to note that while the amendment was primarily a Democratic effort, several more right-leaning senators were critical to its success.

The amendment isn’t the only big political news for the marijuana industry in the recent months and weeks. Last week, in particular, saw some important reforms. On Monday, the Obama administration called marijuana policy a “states’ rights issue,” and wrote that it opposes federal interference on reforms. On Wednesday, the House voted to allow banks to do business with state-level marijuana dispensaries, and on Thursday, Washington, D.C., passed a bill that decriminalized possession of marijuana, according to The Huffington Post and NORML, an organization working to promote the legalization of marijuana.

With these recent political measures changing the game for investors interested in what some are calling the next big American industry, it seems that legal marijuana sales will continue indefinitely into the near future, giving investors in the industry a bit more peace of mind and opening up the playing field for those more cautious investors who have previously found marijuana to be too much of a gamble.

The numbers indicate that it may be worth the risk, and the news lately seems to have established that the industry isn’t going anywhere. Thus far, 22 states have legalized medical marijuana. In 2013, medical marijuana dispensaries sold $1.43 billion worth of pot legally, and Californians spent more than $1 billion on legal marijuana last year, a figure that doesn’t include the sales which happen on the state’s black market.

ArcView Group, an organization that studies the marijuana industry, says it predicts the legal medical marijuana business will swell to become a $10 billion industry by 2018, with more than half of that money being generated by legal recreational sales.

According to BusinessVibes, other industry experts estimate that over time, the marijuana business may grow larger still, predicting that the industry has the potential to eventually reach $100 billion, a level that would make pot bigger business even than corn or soybeans, which are currently the two biggest cash crops in the United States.

A number of challenges associated with the marijuana industry remain. Perhaps one of the more difficult issues to surmount when considering investing in the marijuana business is the fact that the industry, having been previously underground, has no records and too little standardization to establish prices or quality standards.

BusinessVibes notes that all industries carry some risk, though now, it seems the marijuana industry’s legal risks may be lessening. As more states begin to legalize the substance, investors should soon be able to gain access to more credible numbers, as well.

More From Wall St. Cheat Sheet: