Think back to 2017, 2018, and even the first quarter of 2019 – cannabis stocks were hot, and the talk of Wall Street investors globally.
Those who had the resources and foresight to invest in cannabis a few years ago were sitting pretty good by the beginning of last year. More than a dozen cannabis stocks rose 70% or more in the first quarter of 2019, leaving investors up by quadruple digits. But the wins were short-lived.
For the last 14 months or so, cannabis stocks have been plummeting and recent events have done nothing but throw another wrench in the gears for already pessimistic investors.
There is a silver lining however; the fact that cannabis is always an in-demand product, so certain stocks still have a lot of potential.
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What are the experts saying?
Matthew Carr, financial publisher and chief trends strategist of The Oxford Club, a network of investors and entrepreneurs, believes that cannabis stocks will certainly see better days, and those days are likely just around the corner. He says that now is the time to start making investments in the cannabis industry.
“The industry got killed [last year] by the vaping crisis,” stated Carr. “Coming from the illicit market and vitamin E additive, that contributed to the longest bear market the industry experienced. Then we had CEO misconduct and firings. After we made it through that, I thought it was going to be a good year for cannabis in 2020.”
“After COVID hit, I thought maybe it would be the final straw that hit the camel’s back,” he continued. “But the industry has proven to be remarkably resilient. Cannabis deserves a place in that vice stock category—alcohol, tobacco, firearms, casinos—all that people consume more of during an economic recession. I believe the sector is attractive now and after the pandemic is over.”
Stifel analyst Andrew Carter echoed these sentiments, referencing the Canadian market. “The market made strides throughout late April into May with store (reopenings), new store additions, private operators investing in omnichannel capabilities, and Provinces improving upon their own e-commerce capabilities… we believe the strength is likely to continue.”
Things to keep in mind
First and foremost, it’s extremely important to remember that pot stocks aren’t going to get you rich overnight, it’s not that kind of investment. In the beginning, yes, stocks were surging to unimagined heights. But that bubble has burst and prices have leveled out. From this point forward, you can expect to see to slow yet consistent growth (over years, not weeks or months) in stocks that have what it takes to make it over the current hump.
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The second thing to bear in mind is that numbers and profitability matter over marketing hype and empty promises. That sounds obvious, but a good ad campaign from a familiar company might have some novice investors overlooking major monetary red flags.
For example, Aurora Cannabis is a well-known Canadian grower and top-ranked stock among millennial investors. Unfortunately, the company has been losing money like it’s the thing to do, and their share price is dropping as a result. Aurora stocks have lost 84% of their value over the trailing year, yet despite this, new-to-the-sector investors are quick to throw their money at the troubled stock.
Comparatively, investors with money in the lesser-known stock, Trulieve Cannabis, have been banking for years. Although Trulieve has operations in multiple states, they’ve largely focused their efforts on the Florida market, with 48 of their 50 medical dispensaries operating within the state. Their targeted marketing strategy has helped them be very effective with branding while keeping company expenses down.
The third must-know, is that cannabis is a fluctuating stock in a relatively new and turbulent market. Just like most other stocks, many societal factors will impact the cost and profitability of your investment. Tourism, unemployment rates, job market, and numerous other issues can impact the success of a cannabis business.
Stocks to follow
Trulieve Cannabis (OTC:TCNN.F) – As mentioned above, this stock has been a consistent money maker. During its most recent quarter, Trulieve cleared $96.1 million in total sales, with $28.9 million in cost of goods sold and $31.1 million in operating expenses, leaving the company with an operating income of more than $36 million. Trulieve’s shares are up 12% percent over the trailing year.
Cronos Group (CRON:NASDAQ) – With financial backing from major investors like Altria, maker of Marlboro cigarettes, Cronos group was able to funnel money back into their core operations, which solidified their impact and reputation in the global cannabis market. In its first fiscal quarter of 2020, Cronos saw 55.5% year over year growth in net revenue to 8.4 million Canadian dollars. Despite high operating costs, it’s still a strong and safe cannabis industry investment.
OrganiGram (OGI:NASDAQ) – Although this company has had some ups and downs, especially now that we continue to navigate the economic effects of COVID-19, this Canadian grower and producer ended the last quarter with $41.2 in cash and short-term investments. This was a roughly $8 million increase since their previous quarter. Over the long term, this company has exhibited good management practices and the ability to properly oversee funds.
To sum it up, if you have some extra cash on hand, it might be a wise move to put your money in a safe and reliable cannabis stock. Prices are currently down and you can test the waters without putting up a very large initial investment.
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