If you’re looking to invest in marijuana stocks, it may come as a surprise that it won’t be the incredibly easy task you thought it would be. Going to your stock screener and filtering by selecting “cannabis industry” won’t get you the options you want. We promise. There’s a lot more to it than that.
Truthfully, there aren’t any good marijuana stocks out there. This is because the substance is still considered by the U.S. Federal Government as an illegal drug, even if local laws state otherwise.
Additionally, the current administration is known to be strict with drug policy, and, as such, the path to adopting cannabis as a legalized substance that could be used both medicinally and recreationally—country-wide—is looking quite rugged as of this moment.
However, it looks like things will be quite different when 2020 comes around. This is when the marijuana industry really can become mainstream.
Where to Purchase Cannabis Stocks
Currently, there is one place in the world that actually has a strong grasp on the best marijuana business practices out there: Canada.
Rob Hunt, the Principal of ConsultCanna, a boutique consulting firm that provides marketing knowledge and intelligence, states: “The Canadian side has companies that are safer bets…Canopy Growth, Aphria and OrgraniGram Holdings—these companies are building really nice business models.”
However, he understood that there was one big downside to them. “They’re terribly undervalued,” Hunt said. “I think eventually they’ll grow into their market cap, but right now they’re exceptionally expensive.”
Hunt is telling the truth: Canopy Growth, Aphria and OrganiGram are going for 37, 45, and 54 times sales, respectively. To put things into perspective, the most expensive stock on the S&P 500 is Incyte Corp. (Nasdaq: INCY), which goes for 19 times sales.
This is twice as cheaper as the lowest-costing cannabis stock.
So, why does Canada have the best marijuana stocks, arguably in the entire world?
They have practically no legality issues when it comes to weed. The vice president of investor relations at The Green Organic Dutchman (a Canadian private cannabis company that aspires to launch its IPO in January), Danny Brody, said in a statement that the Canadian federal government had announced to legalize recreational marijuana by July 1st, 2018.
Since in Canada medical marijuana is already federally legal, this recreational legalization will “open the floodgates of demand” and make a booming impact on their flourishing economy.
With this historic event in place, there will be lots of investment opportunities, not only in Canada but also in the States. So how can investors get involved?
What Should Investors Look for?
Brody understands that a good business plan will equate good returns. However, he believes that solid ones are rare in the industry. What should matter, he believes, is that whatever plans the company may have been successfully and intelligently executed with a good management team, and experienced partners that could potentially bring value to the company.
He says that people from all types of backgrounds, whether they are farmers or doctors, or even businessmen, come to work in the industry. Knowing this information as an investor is crucial in determining how returns will be.
For example, if a cannabis company produces topical creams infused with marijuana, and it is run entirely by businessmen, then you, as an investor, might be in trouble. You might want to look for a stock associated with a company that is run by people who have expertise in that specific field, or, if you still want to invest in the topical creams, make sure that doctors or medical professionals might have a strong, hands-on presence as stakeholders. This way, you will be more reassured that the company will have a higher chance of thriving.
Another point to be made is the fact that every investor must know the company’s long-term (specifically pricing) plans.
Also, are they going to be a low-cost producer?
Brody’s explanation for asking this question has to do with demand. As of now, Canada has an extremely high demand for marijuana/marijuana products. Once everything is legalized and some time has passed, however, this demand in the market will be corrected by the respective supply and its primary use will be that it will become a part of everyday consumer packaged goods or CPGs.
He states, “Marijuana’s no different from any other CPG industry. The two factors that lead any CPG industry are high-quality and low cost. So unless businesses are planning right now to be low-cost producers, to plan ahead for price compression, they’re going to get left behind.”
This among other factors, like quality, branding, and price compression, will eventually determine who will attain industry domination. With Canada’s quick progression through legalization, the companies will be forced to compete with each other in order to gain a strong traction in the market to remain a top share.
For this reason, returns will be both highly risky and volatile in the cannabis industry, until they even out in 2020.
There are obviously other ways to enter the marijuana stock market and profit from it until then, there are thousands of companies trying to start and seeking investor funding. There just needs to be more strategic thinking with how these investors are putting their money.
Overall, as a potential cannabis investor, you need to look at Canada and see which companies are succeeding. With that information, you can more accurately wager on which of their analogs you can invest in here in the U.S.
MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | new@marijuanastocks.com
