Dale Jackson

Personal Finance Columnist, Payback Time

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Call it reefer madness. Investors big and small are flooding into penny marijuana stocks, and that has some seasoned money managers concerned. Andrea Horan, principal and partner at Agilith Capital says many investors might not know just how risky they are.

“It’s like buying lottery tickets,” Horan said on BNN on Monday.

Pot stocks have been rallying all year, but last month’s vote to legalize marijuana in five U.S. states – and the prospect of legalizing weed in Canada – has sent them through the roof.

Stock prices reflect earnings expectations, and considering many penny pot stocks have little or no earnings yet, expectations are higher than a kite. Many things need to fall into place before shareholders can expect strong and consistent earnings, and that’s what makes them speculative.   

Many Canadian penny pot stocks trade on the Toronto Venture Exchange. The U.S. Securities and Exchange Commission defines a penny stock as a stock trading below $5.

Horan doesn’t invest in marijuana stocks and suggests long-term investors saving for retirement should just say no. “It’s fun money. It isn’t really investing,” she said.    

No matter what your reason is for buying penny pot stocks, it pays to be informed. Watch the video above for a few things to watch out for in this sector.