In November, Californians overwhelmingly voted to adopt pro-weed laws that clear the way toward creating the United States’ largest recreational marijuana|cannabis market.

First, let’s look back
Medical marijuana legalization was initiated by California in the 1990s, but it’s been slower to support laws that open up the recreational marijuana market.

In 2010, California’s Proposition 19 fell on deaf ears when 53.5% of voters elected against passing it. Proposition 19 would’ve enabled Californian adults over age 21 to possess up to 1 oz of marijuana for personal consumption, and to grow marijuana in a space of up to 25 square feet, if it was passed.

While yielding significant tax revenue at the time, supporters applauded Proposition 19 for its potential to help stop the drug war with Mexico. A minimum of one report indicated that if passed, Proposition 19 could’ve saved $200 million on law enforcement expenses and added $1.2 billion per annum in tax revenue.

Despite those arguments, the opposition managed to convince the majority of voters that those tax receipts and savings were overstated.

Getting it done
The recreational market has shifted significantly since the failure in 2010 of Proposition 19. Washington and Colorado passed recreational marijuana laws in the year 2012, and they were joined in 2014 by Oregon and Alaska.

Thus far, legalization in those states has been a success, especially when it comes to raising tax revenue.

For instance, marijuana sales eclipsed $1 billion in Colorado this past year, as well as the state reports it accumulated $17.7 million in marijuana taxes, fees, and permits in November 2016 alone.

With other states having taken the lead on passing recreational marijuana laws, and support for legalization growing nationwide, pro-pot advocates faced a less rocky road to success this past November.

All in all, the Adult Use of Marijuana Act, or Proposition 64, passed by a vote of 57.13% for and 42.87% against, and that means that Californians can now possess up to 28.5 grams of marijuana, and grow up to six plants.

The law also sets up a procedure for licensing dispensaries that could sell marijuana and marijuana goods, plus it gives California the right to impose fees and collect taxes on marijuana.

Overall, the recognized medical marijuana production and distribution infrastructure in California should allow for a fast ramp in recreational marijuana revenue. The Emerald Triangle region in California is regarded to be the biggest place for cannabis production in the U.S., and there are already more than 900 medical marijuana dispensaries operating in the state.

Matt Karnes, founder of GreenWave Advisors, LLC, estimates that the state’s marijuana market could increase from about $2.8 billion in 2017 to $5.8 billion in 2018, when the recreational market is totally up and running. Karnes additionally forecasts that California’s recreational marijuana market will develop quickly, rising to $7.7 billion in 2021.

Marijuana Stock Investments
The possibility for a more than doubling in marijuana sales in California over the following five years has a lot of investors hunting for stocks which could reap the benefits of it.

Regrettably, the marijuana market remains dominated by small-scale players with limited market share, and consequently, most publicly traded marijuana stocks trade on unregulated over-the-counter markets which are ready for fraud. Furthermore, because these companies are reinvesting heavily in their businesses, most of these companies are unprofitable.

Since the industry faces risks linked with uncertainty at the federal level, investors also need to be cautious. Federally, marijuana remains illegal, and also the appointment of legalization adversary Jeff Sessions as attorney general does little to assuage concern of a federal crackdown.

As a consequence, those people who are really interested in investing marijuana stocks are left with few choices. They could {put money into Canadian marijuana stocks that also trade in the U.S., or they can invest in drug companies attempting to develop treatments that are derived from cannabis’ chemical cannabinoids.

Canopy Growth Corp and Aphria, Inc. are two Canadian companies worthy of thought; however, both companies are investing heavily in their businesses, and therefore, could have irregular profit increase over the forthcoming years. Investors also already amply value them.

For instance, Canopy Growth is a leader in the medical marijuana market in Canada, also it’s inked an advertising deal with marijuana icon Snoop Dog that might help accelerate sales. But, earnings stays less than $10 million per quarter, and its particular market cap is already near $1 billion.

Aphria’s narrative is similar. The company’s knee-deep in expanding production, but nonetheless, it merely brought in $0.01 Canadian per share last quarter on just CA$4.4 million in sales. Yet, it is being valued at approximately a half billion dollars.

Switching gears, GW Pharmaceuticals and Insys Therapeutics are a couple of the most investment-worthy marijuana drug makers, but just GW Pharmaceuticals shares may make sense to purchase right now.

This past year, results from three trials of GW Pharmaceuticals’ purified cannabidiol (CBD), Epidiolex, revealed it can reduce monthly seizures in patients with tough-to-treat forms of epilepsy by about 40%. Following those results, this year, GW Pharmaceuticals intends to file Epidiolex for FDA approval. In the event it is approved by the FDA, Epidiolex could become a nine-figure top-seller someday.

Insys Therapeutics’ story is not as convincing. While Insys gained FDA approval to market a brand new formulation of the long-standing THC drug Marinol in 2016, it’s yet to receive DEA scheduling for the drug. Additionally, Insys Therapeutics’ management is embroiled in a lengthy investigation of possibly prohibited sales and marketing practices for its opioid spray, Subsys. Until those investigations wrap up, Insys Therapeutics is a high-risk stock to purchase.

Overall, the acceptance of recreational marijuana in California should provide important new opportunities for marijuana companies, but this market is in the very early innings, and that makes investing in it is rather risky.