15 Tips: Are Cannabis Stocks a Good Investment
15 Tips: Are Cannabis Stocks a Good Investment
According to discussions on the same over at runrex.com, investing in cannabis stocks is becoming more and more popular, with such stocks getting a lot of positive buzz lately. This has been aided by the fact that states have been rapidly legalizing both recreational and medical marijuana. If you are among the people who find themselves wondering if you should invest in cannabis stocks, then this article will look to help by listing both the pros and cons of such an investment through the following 15 tips.
Why you should consider investing in cannabis stocks
- A growing market
Having been estimated to be worth an impressive $9 billion globally in 2017, the cannabis industry has been growing in the years since, with experts estimating that it could grow by at least 40% within the next 10 years, as discussed over at guttulus.com. Given that this is a growing industry, investing in cannabis stocks seems like something you should consider.
- The stock may be potentially underpriced
As is revealed in discussions on the same over at runrex.com, many major cannabis stocks fell significantly in 2019. While this means that anybody who had invested at the start of 2019 or during the peak of the market took a huge hit, investment experts are pointing out that the cannabis stocks may be potentially undervalued due to the scale of this sell-off.
- The worst seems to have passed
As is outlined in discussions on the same over at guttulus.com, many cannabis companies have experienced significant issues during the year that hurt share prices from the removal of Canopy’s CEO Bruce Linton by the company’s board to the COVID-19 pandemic and so forth. Given what the industry has already gone through, one would expect that the worst has passed and that the industry will not experience such a tumultuous time going forward.
- There is more clarity in the industry
Given that cannabis remains federally illegal, there was a lack of clarity in the laws at both local and state levels, with many of these laws contradicting each other, as covered over at runrex.com. However, it seems that the US is about to take Canada’s lead if the passing of the MORE Act in November 2019 is anything to go by. With the passing of the SAFE Banking Act looking likely, this will allow banks to get involved in the industry legally, which will only strengthen the industry.
- Market versatility
One of the reasons why the cannabis industry has been growing so quickly is due to its versatility given that there is CBD oil, marijuana flower, edibles, topicals, bath bombs, beverages, and so much more. If more marijuana products became legal in the US, becoming available to hundreds of millions of people, then such versatility would make cannabis stocks a must-have.
- Canada shows what is in store
As the gurus over at guttulus.com point out, American cannabis company valuations continue to lag their peers in Canada. This is to be expected given that Canada has already legalized cannabis nationwide, with implementation having gone past the initial stages. Given that in the US, only 11 out of 50 states have legalized for adult use and that cannabis remains a Schedule I controlled substance at the federal level, there is lots of room for growth, particularly in a country with nearly 10 times Canada’s population. It is this potential for growth that makes investing in cannabis stocks something worth considering.
- Cannabis stocks have shown that they can hold up during an economic downturn
From discussions on the same over at runrex.com, we have seen cannabis companies strengthening almost across the board, despite the US and global economies being rocked by the COVID-19 pandemic. Many people had been asking how the cannabis industry would hold up during an economic downturn, a question that seems to have been answered by recent developments. Cannabis, just like alcohol, has the hallmarks of a recession-proof industry, making it a very safe investment in what is set to be tough economic times.
Why you should NOT invest in cannabis stocks
- Issues with supply
It is important to note, from discussions on the same over at guttulus.com, that even in states with medical or recreational cannabis programs, there are issues with supply, given that very few dispensaries have licenses. This means that prospective customers face long journeys to find a place that sells cannabis products. With the licensing process proving to be a slog, issues with supply are set to affect the industry in the short to medium term, which may make investing not that attractive.
- Initial proponents seem to be revising their views
At its peak, the cannabis industry had lost of proponents who were quick to point out its potential and why it was worth investing in cannabis stocks. However, as covered over at runrex.com, many have seen the structural problems in Canada, and have revised their opinions, stating that the industry still faces too many issues at this point to be worth investing in.
- Dilution of shareholders by major companies
While companies such as Canopy Growth have been able to land substantial equity investments, some such as Aurora have not, which has forced them to rely on organic growth and acquisitions. As a result of cash-flow issues, Aurora is issuing its common stock as collateral to finance all of its buyouts, which will dilute existing shareholders. Many companies find themselves in Aurora’s position, which is another reason why experts are warning about investing in cannabis stocks just yet.
- Cannabis stocks don’t have a long history
As pointed out by the gurus over at guttulus.com, recreational marijuana didn’t become legalized on a state-by-state basis until 2012. This industry doesn’t have a long history, and many cannabis companies are young which means that they have a higher likelihood of failing. There is also very little publicly available information for investors to research. The fact that it is too early in the game to tell whether the excitement in the industry has got substance to it is another reason not to invest.
- Scams aplenty
The industry’s popularity has also opened up an opportunity for fraudsters to come and play. This has even led to the Securities and Exchange Commission issuing a warning about marijuana trading scams, as is revealed in discussions on the same over at runrex.com. Potential for investment fraud means that you should tread carefully when looking to invest in the industry.
- For certain careers, it can be legally risky
According to the gurus over at guttulus.com, the legal landscape surrounding marijuana remains tricky, and although most investors aren’t likely to face any legal repercussions for investing in cannabis stock given that one is investing in the drug and isn’t producing, selling, purchasing, or using it themselves, for government employees who require a security clearance, the investment may raise a red flag. Similarly, if you are buying stock from another country such as Canada, due to the industry there being more robust, the purchase of foreign stock may threaten security clearance as well. Such legal issues may also prevent many people from investing in cannabis stocks.
- It is not a given that a rise in share prices is inevitable
The common perception has it that the cannabis industry has hit rock bottom and, therefore, a rise in share prices is inevitable. However, from discussions over at runrex.com, experts point out that this is not a given, and that the initial boom may be as a result of the initial hype before many investors realized the many issues in the industry. There is a very real possibility that very few cannabis stocks will rebound, and that many will die.
- The underlying data is not encouraging
Looking at the data, which every savvy investor should always do, then the numbers don’t make for good reading for the industry. Despite the seemingly massive growth, the cannabis industry is losing money at an alarming rate, with the rapid expansion meaning that many producers are burning through cash just to keep up. A lot of the companies in the industries have got some extremely poor underlying numbers, with Tilray, which has an Earnings Per Share, EPS, rating of 7. Such numbers aren’t encouraging for investors.
This discussion only just scratches the surface as far as this topic is concerned and you can uncover more insights by checking out the excellent runrex.com and guttulus.com.