Is the Pot Industry Socially Responsible?

Can the potential big-money marijuana industry be considered socially responsible?

Jun 11, 2014 at 10:30AM

The legalization and increasing acceptance of medical marijuana is driving a revolution. Giant images of pot leaves, growers, and the boldfaced word "MARIJUANA" can suddenly overtake your screen when you're looking for news. Apparently these days, there is no shame in weed.

As investors, it's hard to ignore the money-making possibilities in the increasing legalization trend. Right now, industry market researcher ArcView says the market for legal marijuana is $1.53 billion, and set to grow to $10.2 billion in the next five years.

Investors have good reason to salivate about nascent opportunities. However, many questions swirl around this space, and for those of us who consider ourselves socially responsible investors, there's even more to weigh than whether we could roll the dice and lose our shirts. Could we lose sleep at night, as well?

First and foremost, though, I'd like to stress that it's never responsible to gamble with your financial well-being and, as this "marijuana bubble" blows up, let's be careful and think twice before investing in pot-related schemes and penny stocks.

Getting weed down to a "T"
This article is about responsible investing and, given the fact that "gambling" is considered a dangerous vice, let's first touch on the downright speculative dangers of marijuana investing.

In one example of a perhaps more highly evolved marijuana play -- which makes for a tempting idea -- Canada's Tweed Marijuana has put a pot production plant in a former Hershey factory, and has other legitimizing aspects like a CEO, a CFO, and a "master grower."

Tweed has already gone public on the Toronto Exchange, but it's still troubling for investors. It's a penny stock -- a generally risky investment. It isn't subject to U.S. disclosure rules. The Ottawa Citizen covered its initial public offering, and such coverage is about the most in-depth we can get information-wise. Among the risks: Tweed Marijuana just started raking in sales last month. It also has a lot of capital expenditures in its future, including plans to quadruple production capacity and ramp up its staff.

There's a reason why nascent industries of all kinds are incredibly high risk. In one example, the Internet revolution resulted in far more corporate casualties than successes. Pot portfolios are still uncharted water.

Pot: Positive or not?
As the smoke clears, the area is no longer in the shadows, and marijuana stocks multiply, we can start wondering if it's a socially responsible industry. The arguments in favor of decriminalization have obscured all else. And the NIH's National Institute on Drug Abuse points out an interesting fact: There's been a diminishing awareness of marijuana's adverse effects during the last several years.

Like the tobacco industry and the entire "vice" stock area, certain risks pose a danger to returns, sooner or later. Public acceptance, health-care bills, and the possibility of labeling, strict regulation, and litigation related to adverse effects, are risks that still drag on benefits.

Marijuana use entails some of the same health risks as smoking cigarettes. Smoke inhalation is smoke inhalation. Respiratory and lung problems, "smokers cough," and high rates of illness are among those issues.

NIH's description of pot's "psychoactive" properties sounds dramatic, but "not being in one's right mind," to put it lightly, presents a safety risk. Like alcohol, it damages brain cells. Losing IQ points as a teenager is a major bummer in the game of life. Meanwhile, some mental illnesses can be triggered and exacerbated by mind-altering drugs.

The federal stance on marijuana, despite two states' OK for recreational use and 21 states' allowance of medicinal use, still considers it a Schedule I substance, "having no medicinal uses and high risk for abuse."

Despite the risks, the much-publicized benefits feel socially responsible. There is scientific evidence that marijuana can treat a large number of ailments.

Marijuana has been touted as easing the pain and nausea suffered by cancer, AIDS, and HIV patients. Some people even believe cannabis can treat cancer. Pediatric epilepsy treatment is an increasingly high-profile argument for legalization; many parents are left with no alternatives that can combat their children's seizures as effectively.

Still, many people don't believe marijuana's health benefits outweigh the risks.

High on life, not high on risk
As our world changes -- and the world never stops changing -- it makes perfect sense that, sometimes, we have to adjust our investing attitudes. Some of these adjustments can certainly rock our own opinions on many different industries. The marijuana industry is certainly disruptive, to say the least.

Like many people, despite some concerns, I don't have a huge problem with marijuana legalization. If it's an avenue for healing and even treating illnesses, people should have the right to take that path. On the recreational level, the substance isn't strikingly worse, and in some cases may be better, than alcohol and nicotine, both of which reside in the realm of vice stocks, but are perfectly legal.

Meanwhile, every day, people make their own decisions, and occasionally take risks in all kinds of ways. A world without choices would be a sad place to be.

But as a socially responsible investor, I'm already wondering how SRI will, overall, come down on this. Like many issues in socially responsible investing, it's quite possible many of us will simple want to self-direct our investments according to our feelings about the area, but awareness of the complexity will be a growing topic.

At its core, isn't this what responsible investing is all about? Generally, many of us want to reduce harm at societal levels, and even financial ones. Social acceptance, for some of us, may not always add up to socially responsible. In an area in which we contemplate if our investments add up to harm to ourselves and others, weighing the risks and the benefits is increasingly important.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.

Alyce Lomax has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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