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Right now, the marijuana industry is tripping through its own version of a gold rush. Entrepreneurs are racing to build businesses that will weather the storm and investors are scrambling to get their hands on equity while it’s still cheap. Each group is trying to capitalize on the advantages available to early movers while dodging the various legal pitfalls of the marijuana gray market. Like any good gold rush, it’s a high-risk, high-reward scenario.

The evidence is in the price action of marijuana industry stocks. Most trade over-the-counter and for fractions of a dollar and fall under the dubious umbrella of penny stocks. In August of 2013, the Financial Industry Regulatory Authority (FINRA) issued an alert to investors warning them about potential scams associated with marijuana-related stocks. Specifically, FINRA warned about the well-known ‘pump-and-dump’ scheme in which, “fraudsters lure investors with aggressive, optimistic — and potentially false and misleading — statements or information designed to create unwarranted demand for shares of a small, thinly traded company with little or no history of financial success (the pump.) Once share prices and volumes reach a peak, the cons behind the scam sell off their shares at a profit, leaving investors with worthless stock (the dump.)”

The weight of this warning became tangible in January 2014 when marijuana industry stocks surged anywhere from 20 to 1,700 percent. There were a number of catalyst behind the surge, but the primary one was the implementation of recreational marijuana laws in Colorado. From here, the the frenzy was inevitable.

Businesses have been positioning themselves for years, each trying to be a leader in an industry that is expected to be worth billions of dollars in the coming years. Marijuana sales reportedly averaged about $1 million per day in the first five days of legalization in Colorado, and policymakers are expecting full-year 2014 sales of about $600 million. The market in Washington state, which is expected to legalize the retail sale of weed this year, is projected to be at least as large, if not larger. One study cited by the Huffington Post predicts a $10 billion market in the U.S. by 2018.

As the story usually goes with pies, everybody wants a piece (THC, the primary psychoactive ingredient in weed, is fat soluble, so don’t categorically rule out marijuana pastries.) The challenge that investors face is to pick the good pieces from the bad, and they have to do it in a frenetic jungle of incomplete information and hype, or on some days, misinformation and speculation.

It’s probably wisest for most investors to simply avoid marijuana stocks — in fact, it’s probably wisest for most investors to simply avoid penny stocks all together. Investors who do tempt fate and look for a winner in the marijuana industry right now should be certain that their stomachs can handle their appetite for risk. Especially right now when marijuana-industry stock prices are elevated well above where they were even just six months ago, would-be investors should tread carefully.

But that being said, it’s hard to ignore the siren’s call of a budding industry. Many marijuana businesses are becoming more legitimate by the day and the regulatory fog of war is dissipating. There is money to be made in marijuana, but as always, the question is: is the investment worth the risk?

If you were to follow the advice of Berkshire Hathaway Chair and CEO Warren Buffett, the answer might be no. “Keep things simple and don’t swing for the fences,” Buffett wrote in his 2013 letter to shareholders. “When promised quick profits, respond with a quick ‘no.’” Investors interested in value may also balk at the currently inflated prices for shares of marijuana businesses, which is fair.

But there’s still an argument to be made for the long-term investor willing to sink some money into a high-risk play. If an investor believes that the marijuana industry will become an institution in the U.S., as ingrained as alcohol or prescription medicine — remember, it’s not all recreational, there’s a robust medical market for marijuana — then why not buy into companies that look poised to capitalize on the evolution of the market?

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