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Marijuana stocks soar, index rises 125 per cent in February

A bag of marijuana being prepared for sale sits next to a money jar at BotanaCare in Northglenn, Colorado in this file photo taken December 31, 2013. The Obama administration made it easier on Friday for banks to do business with licensed marijuana companies with less fear of prosecution, further encouraging U.S. states that are experimenting with legalization of the drug. REUTERS/Rick Wilking/Files (UNITED STATES - Tags: BUSINESS POLITICS DRUGS SOCIETY)

The U.S. marijuana industry received a vote of investor confidence last month as the Marijuana Index surged more than 125 per cent in February, fuelling the debate on whether to legalize the commodity on this side of the border.

The index, which tracks marijuana-related stocks listed in the S&P 500, closed out the month at $56.21, after hovering around $25, sending the valuation of the index above US$6 billion.

“Canada is missing out on the clear financial and fiscal benefits of medical marijuana,” Frank Marino, financial adviser at the Marijuana Index told Yahoo Canada Finance. The index monitors information regarding marijuana stocks and other such equities.

According to Marino, the index did well in February for a number of reasons.
That same month, U.S. President Barack Obama signed legislation that would remove federal barriers surrounding the cultivation of hemp. A financial regulation road map was also released, giving a green light to banks to support legal sellers with a number of retail banking services like loans, savings and chequing accounts. Prior to the move, federally-insured financial institutions were reticent to work with marijuana-based businesses for fear of racketeering charges.

Marino says this in turn showed investors that the White House is looking at marijuana as a legal substance, which cajoled investors to be bullish on cannabis.

Marijuana companies have grown exponentially across the border, since the states of Washington and Colorado legalized recreational use of the substance in 2012. The economic benefits are substantial, Colorado expects to take in more than $180 million in tax revenue in the first 18 months marijuana has been legal.

Decriminalization and legalization of marijuana remains a hot topic in Canada with a number of Canadian companies aspiring to go public like Cannabis Science Inc (CBIS) and CannaVEST Corp. (CANV).

Recently, Tweed, a Canadian medical marijuana company based in Smiths Falls, Ont. recently announced its intention to go public with the hope of being listed on the TSX Venture Exchange. It is being advised by GMP Capital.

"We are ecstatic to have a production license in-hand," said Chuck Rifici, Tweed's President and CEO, in a January release. "Tweed is now one monumental step closer to providing Canadians in need with premium, affordable marijuana."

But Greg Williams, a 15 year veteran and retail manager at Cannabis Culture, a magazine that covers global cannabis related issues, is cautious of the investment popularity in marijuana. He says marijuana’s success in the U.S. is attributed to the fact that prices are artificially set and don’t reflect the costs to produce marijuana. Prices are based on the prohibition price that was set by the black market, which is where cannabis was sold prior to being legalized in some states.

“Everyone is rushing to this newly-made industry,” Williams told Yahoo Canada Finance.

Daniel Minton, President of Cannabis Financial, a provider of news services covering emerging public companies in the cannabis and medical marijuana industry, says Tweed’s possible public venture is a positive move for investors, but as a public entity it doesn’t change the direction Canada is heading in the space of marijuana.

It's estimated legal marijuana in Canada would generate over C$4 billion per year in government revenue, based on the consumption of three million annual consumers, according to a draft policy paper from the B.C. branch of the Liberal Party. In British Columbia alone, research suggests the pot industry is worth between $443 million and $564 million per year based on the consumption rate of 366,000 people.

Marijuana is now big business, whether Canada gets on board or not.

“This is very similar to the dot com days, whenever there is a big upswing in any industry, like tech, there will be opportunists who jump into the market and lead to false claims,” Marino. “One has to be cautious where they place their chips.”