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The Minyanville PotFolio: 20 Stocks to Play the Continued Legalization of Marijuana

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Thinking about investing in the legalization of marijuana? Here's our hypothetical portfolio for your consideration.

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A full 19 US states allow the sale and use of medical marijuana. After last November's initiatives, pot is legal in Washington and Colorado. Though marijuana is still illegal in the eyes of the federal government -- a fact that occasionally results in raids of dispensaries in legalized states -- the legalization of pot continues to pick up momentum. Naturally, investors want to know how to cash in on how the times are a-changin', and so, for your consideration of this growing and increasingly more legitimate opportunity, here is Minyanville's hypothetical pot portfolio.
  • Altria Group Inc (NYSE:MO): With its market capitalization of $71.33 billion, Altria is very big. If legalization continues in America, it is likely that big cigarette companies will either acquire the little cannabis companies or develop their own marijuana ventures, "bogarting" the proverbial joint from its microscopic (by comparison of market cap) brethren. Additionally, recent news of Altria finally adding electronic cigarettes to its line of products gives further reason to consider it a pot play: Imagine how easy it could be for Altria, as well as other cigarette companies like, Reynolds American Inc. (NYSE:RAI) and Lorillard Inc. (NYSE:LO), to simply replace nicotine liquid in e-cigs with THC liquid, or replace tobacco in cigarettes with marijuana.
  • Archer Daniels Midland Company (NYSE:ADM): The Decatur, Illinois-based agricultural production company, with a market cap of $22.32 billion, is another behemoth that could very well take a huge share of the marijuana market, but in this instance, by growing the plant itself. ADM focuses on oilseeds, corn, wheat, and cocoa among other commodity staples with 270 plants and 420 crop procurement facilities worldwide. How difficult would it be for ADM, in the case of federal legalization, to start growing pot as well? Also worth considering in this vein is the agro giant Monsanto Company (NYSE:MON).
  • AGCO Corporation (NYSE:AGCO): If marijuana is legalized, big agriculture will likely begin developing fields and production facilities for pot, and they'll need equipment. AGCO, based in Duluth, Georgia, is one of the world's largest agricultural equipment suppliers; it makes tractors, combines, storage facilities, sprayers, and a wide range of farm tools. Along with AGCO, farm equipment manufacturers Deere & Company (NYSE:DE) and CNH Global NV (NYSE:CNH) would also likely benefit from wide legalization -- that is, if major companies like ADM and MON actually do begin major marijuana farming. Following that line of thought one step further, irrigation companies like Lindsay Corporation (NYSE:LNN) and Valmont Industries, Inc. (NYSE:VMI) would also benefit, providing irrigation systems for new and potentially very big marijuana farming ventures.
  • Potash Corp./Saskatchewan (NYSE:POT): Another giant agro company, with a market cap of $33.02 billion, Potash Corp. produces fertilizer and feed products. Its fertilizers, including solid and liquid states of both nitrogen and phosphate, are conducive to the growth of marijuana plants. If a major agro company like ADM or Monsanto started a weed venture, fertilizer companies like Potash could share in reaping the rewards, along with other fertilizer companies like Rentech Nitrogen Partners LP (NYSE:RNF) and CVR Partners LP (NYSE:UAN), which both focus on nitrogen-based fertilizers, and Mosaic Co (NYSE:MOS), which mines concentrated phosphate.
  • The Home Depot, Inc. (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW): Just imagine a future where you can go to the garden section of Home Depot or Lowe's to not only buy equipment for growing pot, but actual marijuana plant seeds. If legalization reaches the federal level, this could be a reality, and these home improvement retailers could bogart the home growing materials space.
  • Amazon.com, Inc. (NASDAQ:AMZN) and Whole Foods Market, Inc. (NASDAQ:WFM): Retailers may not only be selling growing supplies, but ready-to-consume marijuana as well. As the world's largest online retailer, Amazon will very likely, in the case of national legalization, be selling a good amount of growing supplies, seeds, fertilizer, and even perhaps pre-packaged pot, ready to smoke or eat. On the other hand, upscale groceries like Whole Foods could market plants, seeds, and edible marijuana products to high-end side of the market for pot.
  • YUM! Brands, Inc. (NYSE:YUM), PepsiCo, Inc. (NYSE:PEP), and other purveyors of fast and snack foods: I chose YUM! and PepsiCo simply because they own two specific brands that come to mind when marijuana users are discussed (because we all know medical issues will not be the only drivers of this market) -- Taco Bell and Doritos, respectively -- but these companies have diverse holdings in all things fat-laden, sugar-saturated, and totally delicious to consumers with the munchies. Of course, other fast food and snack companies would stand to benefit as well, but the question is, will ubiquitous legalization actually increase the number of pot smokers in America? If so, snacks and Taco Bell may be consumed more.
In addition to these mid- and large- cap stocks, there are many micro-cap stocks that are involved directly or indirectly with marijuana. It it worth noting that, as these companies are so small, they are extremely risky for investors and therefore unsuitable for a model portfolio.

Keep Your Eyes Peeled for New Ventures

James Shively, a former Microsoft Corporation (NASDAQ:MSFT) executive and marijuana entrepreneur, wants to bring in $100 million in investments to create "the most recognized brand in an industry that does not exist yet." Shively wants to establish "the Starbucks (NASDAQ:SBUX) of pot."

And for every Starbucks, there is the alternative with Dunkin Donuts (NASDAQ:DNKN), the cheap play McDonald's (NYSE:MCD) McCafe, Maxwell House (NASDAQ:KRFT) for home consumption, and many others options. Representing a potentially huge change to our national identity and culture -- then again, maybe we're underestimating pot's influence on our culture to date: Steve Jobs, founder of Apple Inc. (NASDAQ: AAPL), was known to partake -- the full legalization of marijuana would open countless opportunities for entrepreneurs. Be vigilant in looking for opportunities to ride the expected wave of legalization.

Follow me on Twitter: @JoshWolonick and @Minyanville
Position in MO.
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