I’m really excited about the legal marijuana industry. Everywhere I look, it seems like it’s flourishing. And I’ve seen in the news that new states are legalizing marijuana all of the time, so there are more and more customers for legal marijuana the time!
My friend, who graduated last year, shares my interest. And he has some money from his parents, so he’s trying to break into the marijuana industry and make a career in it. He’s not sure yet whether he wants to own a dispensary, or a growery, or what, but he’s sure marijuana is his future, and he wants me to invest in it. I have some money saved that I inherited from my grandparents, but my parents are cautioning me against this. What should I do? I think there’s a ton of growth potential here–no pun intended.
The marijuana industry is growing, there’s no doubt about it. Experts project the United States’ marijuana business to create more jobs than the country’s manufacturing sector by 2020. That’s a lot of money in marijuana!
But marijuana does face some challenges. Federal laws don’t look kindly on the industry, and recent reversals in federal policy have given those laws more teeth. And it’s worth remembering that, while a rising tide may lift all boats, it’s still possible for individual boats to sink–and for individual businesses to fail, even in good economic times. Eight out of every 10 businesses fails, which is part of why experts caution investors to favor a diverse selection of established companies over high-risk investments in individual new companies.
There are plenty of reasons to believe in the marijuana industry, but putting a large chunk of your net worth into your friend’s business may not be the best way to invest. A more diversified portfolio of most established companies–such as the ones tracked by MMJ Stocks, which specializes in medical marijuana stocks–may be a wiser choice. You’ll want to supplement that with holdings in other industries, perhaps through an index fund that tracks the stock market more broadly. And you’ll want bonds, too, and other assets to spread your risk around.
This isn’t to say that you can’t invest in your friend’s business at all, especially if you see a future for yourself within his organization. But be careful, because your friend seems to lack a clear business plan–and, for that matter, even a clear idea of which part of the marijuana business he wants to get involved in. Be cautious, and invest only what you can afford in opportunities you truly believe it. Don’t let your friendship blind you to the risks of investing in unproven companies–even in healthy markets during economic boom times.
“Character–the willingness to accept responsibility for one’s own life–is the source from which self-respect springs.” — Joan Didion