Friend or Foe – Marijuana Stocks and the Tobacco Industry

Friend or Foe – Marijuana Stocks and the Tobacco Industry

Marijuana isn’t legal at the federal level, and that’s actually a blessing for the current crop of marijuana stocks, which are only seen as stocks to buy now because of the drug’s current legal status

On the one hand, marijuana stocks — as sketchy as they are – would get a huge lift on impending legalization at the federal level. Heck, the entire sector of dubious over-the-counter medical marijuana stocks took off when only the states of Colorado and Washington legalized the drug.

That’s because the perception — as wrong as it is — is that existing marijuana stocks are sure winners on federal legislation. That fuels the mistaken belief that these penny issues are stocks to buy now.

Never mind that none of the OTC marijuana stocks are serious companies. As it is now, none of them actually grow or sell marijuana. They sell supplements, oils, accessories — products that are tangential to psychoactive marijuana.

They’re not really “marijuana” stocks.

After all, they can’t be. Marijuana is illegal in 48 states. And as suspect as the marijuana stocks might be, the people behind them are not stupid. Many of the marijuana stocks already have problems with securities regulators. They don’t need federal law enforcement on their cases too.

And yet it’s the promise of federal legalization that keeps these OTC marijuana stocks in play. That’s why some see them as stocks to buy now. If federal legalization one day looks imminent, these OTC medical marijuana stocks might rally ahead of the news and fly high for some time — but that will last only until real companies get in the game.

And they surely will.

Are Tobacco or Marijuana Names Stocks to Buy Now?

At this time, medical marijuana companies and their OTC marijuana stocks have nothing to fear from the big tobacco companies — the most obvious entrants into a legal marijuana industry. Tobacco giants such as Reynolds American (RAI) have made it clear they have no interest or plans to get into the marijuana business.

But of course they are going to say that as long as marijuana remains illegal in all but two states and has dim prospects of federal legalization in the near — or even medium — term. As such, tobacco companies are hardly stocks to buy now (at least as marijuana plays).

The fact remains that there’s still tremendous opposition to legalized marijuana and a stigma remains attached to the drug. Tobacco companies — headquartered in conservative states and owned mostly by conservative institutional investors — are never going to go near marijuana until it’s absolutely safe to do so.

However, if federal legalization looks to become a reality one day, you can be pretty damn sure the tobacco companies will be more than ready. That’s why federal legalization ultimately will wipe out most if not all of the OTC medical marijuana stocks. It’s their curse.

Sure, it’s possible that a few of these companies are on the up-and-up and have something of value, making them acquisition targets. But more likely is that they’ll all get steamrolled by the big boys.

Bottom Line

For now, the tobacco companies are staying away from marijuana (at least publicly). That’s the good news for OTC marijuana stocks, which are living on hype and hope.

But if the day does come for nationwide legalization, any OTC marijuana stock still standing won’t stick around for long.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.