Hundreds of articles have been written about investing in marijuana (cannabis) companies. The one theme that echos throughout the majority of those articles is that investing in marijuana companies is risky business. A large portion of the companies trade OTC (Over the Counter) and thus do not have to file audited financial reports with regulators. The stocks are also highly correlated, meaning that the majority of the time they trade in lockstep with the broader industry. One of them goes down and the rest follow. The SEC actually suspended a handful of cannabis companies for fraud in 2014 and issued an investor alert to warn investors of the potential risks in holding these companies.

The SEC bulletin can be viewed here:

Investor Alert On Marijuana Related Companies

One way to guard against the risk of owning individual stocks is to purchase an ETF. Unfortunately, no exchange traded fund exists, at least for now, for the marijuana industry. One helpful site to keep an eye on an index is available however…

The Marijuana Index

After doing your due diligence and understanding the risks involved (as you should with any investment) you have some choices. If you do want to speculate on OTC names I would highly advise buying a basket of several and spreading your bets around. Not all of those companies are going to survive and seeing your marijuana flyer going to $00.00 will result in your wife questioning the sheer stupidity of your investment thesis. As we all know, I can speak from experience.

If you want exposure to the more legit companies, you have some choices such as $ZYNE, $IIPR, $CARA, $INSY, or $GWPH. I am going to break the technicals of these down below.

1. $GWPH GW Pharmaceuticals is the largest of the components of the Index at a market cap near 3 billion. Goldman issued a buy rating on the stock late last year.

GWPH is off its all time highs of about $140 and in my view is nearing a decent spot to initiate a long position. Back in September of last year it gapped up from $110 to $117 and has been consolidating since then. I would look to start a position from $108-110, adding to it should it fall further. I would add more around $100 and round out the position should it get back to its volume point of control down at $90. Buyers around $110 will be looking to defend so I wouldn’t expect it to fall much further, but in the event it might, buy 1/3 of the position at a time.

2. $ZYNE Zynerba Pharmaceuticals

Oh my. I want you to read something: Cup & Handle Pattern

This may take a while but I think it’s actionable right about now. To be safe I’d once again look to buy a full position in pieces. I’d initiate the first third here around $17, the second at $14 and the last at $10 if given the slight chance.

3. $IIPR Innovative INDL

A relatively new issue, makes this name extra ̶h̶a̶z̶a̶r̶d̶o̶u̶s̶ fun. It is forming a symmetrical triangle pattern, which technical analysts refer to as a coil. Most often after this period of consolidation, the stock will break out in the direction of the primary trend. If I were to initiate a position in this name I would buy here, and then at $17. One thing is for certain – this stock is going to move soon. My bets are on up but with an issue this new we don’t have a lot of historical price action to analyze.

4. $CARA Cara Theraputics

Referring to #2 above, and now that you are an expert in Cup and Handle Patterns, do you see anything interesting here? Stocks of the same group tend to move together, oftentimes in the same patterns.$ZYNE is taking its time but do you see it now? $CARA is just further along. Look for $ZYNE to look just like this is a few months. I wouldn’t buy $CARA up here when I could buy $ZYNE pre-breakout. I would wait for $CARA to pullback to $12, put on half and then put the other half on at $10. I don’t buy stocks up, I wait for pullbacks or buy other stocks related to them that haven’t had their turn yet.

5. $INSY Insys Therapeutics

Great spot to initiate a long with a stop around $8.75 which buyers have defended for a long time. If I were to get stopped in this one I would stay out below $8.75. Initial price target would be $13 and longer term $20. Quite possible the stock could double from here if given time. Manage risk with a stop and this is a viable play from a technical standpoint.

6. $TRTC Terra Tech Corp (all around piece of lottery ticket shit)

Fancy yourself a flyer? This is my dark horse. This thing is volatile and in so many words, divorced from the ceremony of man – 100% fu*ked. But… if it’s not? Notice how the “animal spirits” can out of nowhere take this stock (if you can even call it that) from $.10 to $1.40 in a big hurry? The trick with this one is simply small position size. If you had 10k you planned to put to work in the marijuana sector. I’d put maybe 2% or 3% of that in a name like this. When and if it rips you have to be on top of it. It drops almost as fast as it pops when the buyers come to their senses realizing this company probably isn’t even real.

While it is always prudent to manage risk to avoid the loss of your hard earned capital, it is especially true in the marijuana sector. It’s a group that is still coming into its own, is highly affected by headline risk, and is pushed around by degenerate day traders (at least the penny stocks). However, with the extra risk will come extra reward if you can stomach the inevitable roller coaster some of these names will take you on. Set your position size before getting into any of these names, know what you are willing to risk, and take a longer term time horizon and I believe that you will be handsomely rewarded for your efforts.

@omahacharts