The legal cannabis sector is no longer the "Wild West"-style marketplace it was back in, say, 2013, but there's still plenty of volatility compared with the placid broader markets.
Then again, that's why the right pot stocks reward forward-thinking investors with triple- and quadruple-digit gains. In fact, there's a bevy of micro- and small-cap companies, any one of which could be the next mega-cap blockbuster - the long-sought-after "Starbucks of weed" or "Facebook of pot."
My Nova-X Report's Roadmap to Marijuana Millions model portfolio is chock full of those kinds of stocks. Right now my paid-up members are sitting on gains of 915%... 520.6%... 442.7%... and five more triple-digit winners. If you'd like to find out how to take advantage of this green revolution and get in on gains like those, click here.
But I don't want to leave anyone with the impression that the only way to make a killing on pot stocks is to buy small, volatile companies. The gains from my Scotts Miracle-Gro Co. (NYSE: SMG) and GW Pharmaceuticals Plc. (Nasdaq: GWPH) recommendations prove that just isn't the case.
Then there's the company I want to tell you about today.
It isn't likely to quadruple your money quickly, but you'll likely smash the market with double- and even triple-digit gains, and it pays a dividend that puts you way out ahead of inflation and low interest rates, too.
What's more, all kinds of small legal cannabis companies are beating a path to its door for help with a very tricky problem...
Legal Pot's Watershed Moment
I'm talking about Microsoft Corp. (Nasdaq: MSFT) and its June 2016 move into the legal marijuana business.
No, the Redmond, Wash.-based tech juggernaut isn't marketing cannabis edibles or any potent new strains of weed.
Of course not. It won't touch so much as a seed.
Instead, it's all about the partnerships.
Rather, Microsoft has jumped in on the software side of the cannabis sector, partnering with Los Angeles-based startup KIND Financial to help ensure cannabis companies stay inside the legal lines.
Microsoft is working with KIND's Government Solutions division to make available to state and local governments the software they need to track cannabis companies' compliance.
As I've noted before, compliance is particularly important to the cannabis sector. The marijuana legalization trend represents a bold social sea change away from nearly 90 years of prohibition. So strict compliance is a way to make legal weed safe for consumers in a regulated marketplace and palatable to "law-and-order" types in governments and legislatures.
And compliance is strict: In some jurisdictions, failing to cross a "t" or dot an "i" opens the door to heavy fines and legal sanctions.
Many pot entrepreneurs lack the experience and knowledge necessary to comply with all state and local business regulations. I'm talking about everything from employment and labor laws to environmental regulations and tax codes
The stakes are too high to leave anything to chance in the $6.7 billion legal marijuana market - which will likely top $35 billion by 2020.
Pure Plays - and Pick-and-Shovel Plays
That's why Microsoft is in my Roadmap model portfolio - and why it should be in yours. The tech giant has made a big commitment to developing these tools for the legal marijuana sector.
And beyond KIND, there are many brilliant startups that will be pushing the likes of Microsoft to keep upping their game - or Microsoft will buy them out to fill a gap. Some of them are in that model portfolio.
Only marijuana firms with the best compliance and tracking programs will thrive in a space that more and bigger corporations are moving into.
"If you don't," says Jordan Wellington, director of compliance at the self-proclaimed "marijuana law firm" Vicente Sederberg LLC, "some rich, old guys are going to steamroll you."
To me, that means when you're investigating pot stocks, we don't just look at growers and dispensaries. We also invest in the pick-and-shovel plays that are developing the tech tools those companies need to survive and thrive - plays like Microsoft and Scotts Miracle-Gro.
"One false key stroke is a permanent violation," Wellington told me at a recent legal marijuana business expo. "You get enough of those non-compliance violations, you're not a grower or dispensary or research group anymore."
For its part, KIND (which created the software Microsoft is selling) "offers a range of products, including ATM-style kiosks that facilitate marijuana sales," according to The New York Times.
The software it created will allow governments and entrepreneurs a way to monitor the distribution of cannabis "from seed to sale" and ensure compliance.
David Dinenberg, KIND's CEO, told USA Today that "thanks to Microsoft's huge reach, it'll be easier for us to target every state with our compliance solutions. It's a win-win for both of us as more states look to legalize medical marijuana."
This is about more than keeping weed companies on the straight and narrow, though...
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Is Walgreens Next?
Microsoft's entry here is as significant from a symbolic standpoint as it is from a purely financial and business point of view.
In one swoop, Microsoft did nothing less than legitimize the cannabis trade in the eyes of many.
Matthew A. Karnes, an advisor to the cannabis industry, told The New York Times that "it's very telling that a company of this caliber is taking the risk of coming out and engaging with a company that is focused on the cannabis business."
KIND's Dinenberg was even more hopeful: "I would like to think that this is the first of many dominoes to fall."
There are signs that other major companies recognize that marijuana is moving into the mainstream... and marijuana investing into the "big time."
For example, Oracle Corp. (NYSE: ORCL) is working with the state of New York to help administer its Medical Marijuana Program.
And in May 2016, the world's largest drugstore chain, Walgreens Boots Alliance Inc. (Nasdaq: WBA), published a 650-word blog post exclusive about medical marijuana.
Titled "What Is Medical Marijuana? Clarifying Clinical Cannabis," the post went on to answer common questions about medical marijuana and even told readers what to do to if they wanted to obtain it.
It's easy to read that blog as an opening gambit in what could become an all-out effort on the part of Walgreens to eventually lobby for the right to dispense cannabis.
But Microsoft has stepped forward publicly and unambiguously. It is now well into its first year as a player in the legal marijuana trade and a fixture in our Roadmap to Marijuana Millions legal cannabis portfolio.
The company is starting out by marketing the KIND software to government employees, but hasn't ruled out marketing to legal marijuana companies through dedicated cannabis events. The Microsoft logo flying proudly at a conference packed with marijuana growers and distributors would be a huge leap forward for the industry.
This Pot Cloud Produces Profits
The software that Microsoft will market uses the company's Azure cloud-computing platform, which allows users to build and manage applications through Microsoft's data centers. The platform was designed to be compliant with Health Insurance Portability and Accountability Act (HIPPA) regulations.
"Microsoft is helping us support governments in their expansion of cannabis legislation," Dinenberg told CNNMoney. "They're experienced at providing platforms for government regulation. This is something Microsoft does every day of the week with other businesses in other categories."
Azure has been growing like a weed since its launch in 2010. For the third quarter of fiscal 2017, Azure revenue jumped 93% - to $925 million - meaning it's growing twice as fast as Amazon Web Services.
So Microsoft's move into the weed space spotlights the way it's leveraging the cloud to propel growth.
It's a smart strategy: Market researcher Forrester estimates the cloud market will grow from $55 billion in 2014 to $241 billion by the end of the decade.
Weed is just the latest development in Microsoft's exciting cloud story.
Now, no one is suggesting that an alliance with the cannabis markets constitutes anything approaching a "game changer" for Microsoft. The company has a market cap of $644.86 billion and annual revenue north of $89 billion - so we're not looking for the stock price to triple.
(Though it does have the biggest gains of the three "pot stocks" I've shared with you here - and will likely continue to do so under the dynamic leadership of CEO Satya Nadella.)
But as marijuana moves into more and more American homes and doctor's offices, Microsoft's cannabis compliance investment will increasingly move the needle.
What's more, Microsoft gets you low-risk entry into the legal cannabis sector and a respectable (and growing) 2.65% dividend yield. This is one to buy now and build out on dips.
One last thing.
I make sure every single subscriber to my Nova-X Report research service gets a copy of my new, updated "weed investors' bible," The Roadmap to Marijuana Millions: Phase II.
It's got the tickers of all of our favorite legal cannabis plays. Click here to learn how to get it...
About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.