This Marijuana Study Could Be Just the Spark That Pot Stocks Need

By Sean Williams Markets Fool.com


Source: Flickr user Mark.

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Whether you realize it or not, the perception of marijuana is changing at an extremely rapid pace.

The drug, which is still classified as schedule 1 by the U.S. Drug Enforcement Agency, meaning it is illicit and has no medically beneficial qualities, has gained both the public's favor and that of quite a few legislators. As it now stands, 23 states plus Washington, D.C., have legalized marijuana for medicinal purposes ranging from glaucoma to terminal cancers. In addition, four states (Alaska, Oregon, Colorado, and Washington), along with Washington, D.C., have legalized the recreational use of the drug.

Even a decade ago these numbers would likely have been unimaginable, with the approval rating for marijuana only then in the mid-30% range -- but how times have changed. The latest surveys from Gallup and the General Social Survey in 2014 both showed a slight majority (51% and 52%, respectively) of respondents now harboring a favorable view of marijuana. Studies of individual swing states that have focused solely on medical marijuana's favorability rating have regularly showed "favorable" responses of more than 70%.

The chief challenge to marijuana's expansion
Yet in spite of this rapidly changing environment, obstacles remain for marijuana supporters and even investors looking to take advantage of this shift in opinion by purchasing pot stocks.

Chief among these challenges is marijuana's benefits versus risk profile.

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Prior to this large shift in statewide medical marijuana legalizations, a vast majority of clinical studies conducted involving marijuana (greater than 90%) focused on the risks of the illicit drug instead of looking at its possible benefits. The end result today is that researchers have a mountain of clinical data a mile high concerning the dangers of marijuana, but have little evidence of its clinical benefits.

Source: National Institute on Drug Abuse via Facebook.

Don't get me wrong: We've highlighted a number of studies in recent months pertaining to marijuana's ability to help regulate type 2 diabetes, fight aggressive brain cancer, or even treat rare forms of epilepsy via cannabinoids -- which is what the most popular among all pot stocks, GW Pharmaceuticals, is working on right now. However, without mature benefits data, lawmakers are in no rush to change the current scheduling of marijuana.

A majority of the negative studies and press surrounding marijuana centers on its potential long-term effects on cognition and memory for adolescents and young adults. In April, for instance, we looked at a studyat Northwestern University that used MRI scans to examine patients' hippocampus, the area of the brain responsible for long-term memory. The study pitted regular marijuana users who began using at age 16 or 17 (and who had stopped using marijuana two years prior to the MRIs) against young adults who had never used it. The results showed an 18% lower long-term memory test score for the marijuana-use group compared to the young adults who had never used marijuana before.

Studies like this keep federal lawmakers worried about pushing too far or too quickly with marijuana's expansion.

This new study could be big news for pot stocks
However, a new study released this past week on marijuana trends among minors and young adults could relax regulators' fears about adolescent access to marijuana and light a fire under pot stocks.

Source: National Institute on Drug Abuse via Facebook.

The study, released by the University of Texas at Austin's School of Social Work and published in The American Journal of Drug and Alcohol Abuse, used data from the National Survey on Drug Use and Health between 2002 and 2013 and aggregated the opinions on marijuana and use rates of more than 430,000 adolescents and young adults. These included nearly 106,000 adolescents ages 12 to 14, almost 111,000 ages 15 to 17, and approximately 222,000 young adults ages 18 to 25.

The findings demonstrated that the youngest adolescent crowd (12-14 years old) had a "strong disapproval" of marijuana ranging from 74.4% to 78.9%, and there was a noted reduction in use between 2002 and 2013 in this age range. Although adolescents15-17 years old failed to show a trend among marijuana disapproval over the 11-year study period, a significant drop in use rates of marijuana over the prior 12-month period was observed (26.2% in 2002 compared to 21.9% in 2013).

Perhaps even more notable was the interesting bifurcation among young adults (ages 18 to 25). There was a substantial decrease in those that strongly disapproved of marijuana from 40.5% in 2002 to 22.6% by 2013, yet the number of marijuana users in this group ticked up by just 2% over the 11-year period.

Why investors might love this study
Marijuana businesses and investors in pot stocks should be particularly happy with the last set of data from this study concerning young adults as it implies that young adults are capable of making decisions on their own using the information accessible to them on marijuana. A softening stance on marijuana coupled with a minimal uptick in use rates could alleviate concerns from lawmakers that legalizing the drug would turn society on its head, so to speak, and expose young adults to the negative effects of marijuana.


Source: Federal Reserve Bank of New York via Facebook.

It's no secret that pot stocks are counting on an eventual change in the federal government's stance on marijuana (either a legalization or decriminalization of the drug) in order to thrive. With research firm GreenWave Advisors forecasting that a nationwide legalization of marijuana could pump the industry's valuation up to $35 billion, pot stocks could see substantial profits under such a scenario.

Keep this in mind
Of course, investors in pot stocks should also keep a level head about them considering how risky an investment they could be making.

Let's not forget that there is no long-term certainty that marijuana businesses can thrive until the federal government changes its stance on marijuana. President Barack Obama has made it fairly evident that marijuana ranks pretty low on his list of topics to tackle, while a majority of the candidates for the 2016 presidential election have taken either a negative or wait-and-see approach to the drug. It's looking unlikely (at least to me) that the federal government will change its position on marijuana anytime before 2020. This could mean years of ongoing losses for pot stocks and possibly their shareholders.

Another concern to be aware of is that very few pot stocks trade on reputable exchanges -- most are on the over-the-counter exchange. Though the OTC boards are doing a better job of cleaning up their act in recent years, companies listed on the OTC boards aren't necessarily required to report their quarterly results or file financial statements. This can make it veritably impossible for investors to make an educated buy or sell decision about a pot stock.

Make no mistake about it: The study from the University of Texas at Austin is good news for pot stocks and the marijuana movement. But make sure not to get carried away with your excitement as there could be a long road ahead before pot stocks and marijuana get the green light from the federal government.

The article This Marijuana Study Could Be Just the Spark That Pot Stocks Need originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.