How to Make Money Off US Cannabis Legalization Without Leaving EuropeLukas HurtDecember 7, 2016
Not everyone is willing to wait. Some inventive European cannabis enthusiasts have already found a way to capitalize on the end of prohibition happening across the pond.
“A former classmate approached me in 2013 with an interesting proposition,” Ivo Prax, a Czech businessman in his early 30 who runs a successful marketing firm, told Leafly. “That was to look around American and Canadian stock markets for potentially profitable cannabis-related companies.”
Prax’s friend, a long-time legalization activist from the Czech Republic who asked to remain anonymous, also closely follows cannabis developments in North America. After Colorado and Washington legalized in 2012, he turnd his attention to the so-called OTC (over-the-counter) markets, formerly known as Pink Sheets. The system allows for trading shares of small public companies between two parties without the traditional supervision of an exchange.
“My friend found a good few American canna-companies listed on OTC Markets Group,” Prax explained, “and my task was to find out if there were any brokers operating in the Czech Republic, which would allow us to trade stocks of these companies.”
It took some time, but finally he found a bank that would participate. In mid-2013, the men invested $2,000 each, becoming happy owners of thousands of shares in roughly a dozen cannabis companies. Nothing much happened on the market during the following few months.
Then they saw Leonardo DiCaprio “selling penny stocks to schmucks” in the Wolf of Wall Street movie and started to doubt their decision. “Are these companies legit businesses, or merely overpriced scams?” Prax said he kept asking himself.
By the end of 2013, however, as legal cannabis sales in Colorado began picking up in earnest, almost all cannabis-related penny stocks shot through the roof. According to Prax, some of their shares rose nearly 700 percent in value over just a few days.
“Shortly after New Year’s Day, we decided to sell most of our portfolio and cash in more than $5,000 each,” Prax said. “Had we waited a few weeks longer, we could have reaped much more.”
But timing is everything. “Had we waited too long, until March,” Prax added, “we could have lost all our profits.”
Both Czech investors changed their strategy after the profitable-yet-stressful experience. They focused on more “stable” stocks of well-knonw companies such as GW Pharmaceuticals—the biotech company that produces the oral spray Sativex—as well as large, government-licensed medical cannabis producers based in Canada. Those companies don’t see the same fluctuation and uncertainty that penny stocks do, Prax explained, but the potential for growth is still there.
Frankly, he added, the wave of legalization that hit the US following the November election made him look into cannabis penny stocks all over again.
Regardless of whether you place your bets on established companies or decide to climb onto the roller coaster called penny stocks, these investments carry risk. Nevertheless, trading cannabis securities is so far the only available way for Europeans to capitalize—or suffer losses—on America’s green rush without leaving Europe.
Editor’s note: The author of this story doesn’t recommend specific penny stocks, nor does not own shares in any of the stocks mentioned in this article.