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How to Invest in Nasdaq-Traded Marijuana Stocks and Private Pot Companies

Thinly-traded OTC companies are no longer one of the main options for investors as opportunities to invest in the growing cannabis industry.

The legal marijuana markets are currently generating $5.7 billion in revenue in 2015, an increase from $4.6 billion in 2014 in revenue and are estimated to reach $22 billion by 2020, according to The ArcView Group, a cannabis investment and research firm based in San Francisco.

Companies are seeking alternative options for mainstream investors to participate in the budding sector ranging from listing on the Nasdaq where companies undergo greater scrutiny by shareholders and regulators to crowdsourcing where nominal investments can be made.

How To Invest in Cannabis Companies

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The current options for investors are limited to a handful of companies listed on the Nasdaq, including GW Pharmaceuticals (GWPH) , a U.K.–based biotech company with a cannabis-based epilepsy drug; Insys Therapeutics (INSY - Get Report) , a Phoenix company known for its cancer pain management drug but is developing a cannabis-based drug for the treatment of epilepsy; Cara Therapeutics (CARA - Get Report) , a Shelton, Conn.-based clinical state biopharmaceutical company that develops and commercializes pain relief drugs; and Zynerba Pharmaceuticals (ZYNE) , a Devon, Pa.-based company focused on developing and commercializing synthetic cannabinoid therapeutics. To boot, MassRoots, a Denver-based social networking company for cannabis users, is attempting to list on the Nasdaq again to raise capital.

“Most of these stocks are not covered by broker dealers,” said Jason Spatafora, co-founder of Marijuanastocks.com and a well-known Miami-based cannabis trader known as @WolfofWeedST on Twitter. “GW Pharmaceuticals has the strongest Wall Street coverage and its shares are covered by Bank of America and Morgan Stanley.”

The majority of the 350 cannabis-related businesses are traded on the OTC, said Eddie Miller, CEO of InvestInCannabis.com, a New York-based cannabis technology investor.

“There are around 195 companies that participate exclusively in the sector and the rest of the businesses somehow touch it but have diversified interests,” he said.

The glaring issue is that most of these companies have relatively low market capitalizations and low daily trading volume, making it risky for investors, Miller said.

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