Some call the marijuana craze the modern-day Gold Rush with a hint of green.
With medical marijuana (aka “cannabis”) legalized in 37 states and our nations’ capital, this once illicit practice is now becoming a mainstream investment opportunity. The roots are in the ground and it does not appear there is much in the way to stop the upward trajectory of growth. With more than 420 publicly traded stocks in the cannabis industry, many are taking notice of this alternative investment opportunity through their self-directed IRA in the private sector.
When it comes to alternative investing within your self-directed IRA the only prohibited investments as defined by the IRS are; life insurance, S-Corporation stock and collectibles. So where does a cannabis investment fall? Preferred Trust Company clients have begun to ask questions as to the legality of holding cannabis-related investments in their self-directed IRA. It is our stance that if the investment itself is legal then it is acceptable. An example of this would include investing in a company that sells hydroponic equipment or a real estate investment for leasing or acquiring land.
Cannabis investments many times are a derivative of the plant itself. Take for example the numerous investment opportunities in the agricultural sector through the development of newly advanced cultivation products and services such as; automated fertilizer systems and improved greenhouse and lighting technology. Or how about the biotechnology sector that is looking to capitalize on the cannabis-derived pharmaceutical market through the development of FDA approved treatments. An investment in these companies are not directly tied to the growing of or dispensing of what is still considered an illegal substance on a federal level.
The cannabis industry has its uncertainty despite recent state rulings to legalize the medical and recreational use. So why is the federal government allowing recent state rulings to legalize a federally illegal substance? This is a question that is unknown to many creating the uncertainty of this industry. One thing that is known is that the cannabis industry is now a dominating force of state income, which is not going unnoticed by the federal government.
Before making any cannabis-related investments, investors should beware of the risks. Fraudsters often exploit the latest investment craze. No matter how you spin the cannabis-related industry as medical or recreational, the fact still remains-cannabis producers and distributors may be at risk of federal prosecution.
If you are considering cannabis-related investments, the Security and Exchange Commission (SEC) recommends carefully reviewing all investment materials for accuracy of statements and financial statements. It is also a good idea to consult with a legal professional before making any investments to understand the inherit risk.