Stocks of cannabis companies have soared over the past several months, but investors need to tread cautiously even though the $10 billion US market for marijuana could reach $50 billion in five years. Already, 33 states and Washington, DC, allow the production, sale and use of medical marijuana. Ten states plus Washington, DC, allow recreational use.

Problem: Under federal law, marijuana is regarded as an illegal controlled substance, which creates stumbling blocks for US cannabis companies, and many health experts caution that not enough is known to declare marijuana “risk-free.” Banks and credit card companies are reluctant to do business with these companies.

If you want to invest: For now, ­focus on companies based in Canada, which passed a law last year allowing the production, sale and possession of recreational cannabis. (Medical use was legalized in 2001.) Canada’s $1 billion cannabis market likely will reach $10 billion in five years.

Two small, fast-growing Canadian companies that can do well…

CannTrust Holdings (CTST), founded by pharmacists, specializes in medical marijuana and serves about 66,000 patients. The company has one of the largest cannabis greenhouses in North America and is awaiting regulatory approval to add 200 acres for low-cost outdoor growth, which could quadruple its production by 2020. In addition, CannTrust has partnered with companies in Australia and Europe to ship its products globally. 

OrganiGram Holdings (OGRMF), which focuses on recreational marijuana, has among the lowest costs and highest profitability of Canadian growers. But the stock still trades at a discount to its peers because the New Brunswick–based company is regarded as a regional player. It has filed to list its stock on Nasdaq, which should help attract institutional ­investors. 

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