By Jimmy Butts
I’ve avoided the topic and industry for a while now. But there’s no denying that it’s a burgeoning space with considerable momentum. One that I get plenty of questions about…
I’m talking about the cannabis market, or pot stocks.
Pot stocks have been a hot topic for years now, but investing in the industry has been volatile and tricky. That’s because there are more than 600 cannabis stocks being traded. Most of those stocks trade over-the-counter (OTC), a market that is lightly-regulated and has limited access to capital.
To make it worse, the vast majority of these companies will likely disappear. Many are fly-by-night firms with no sales or earnings. Investors in this space might see dramatic gains in a short amount of time, only to watch them vanish in a matter of days.The penny pot stock, MyDX, for instance, lost 99% of its value over the last couple of years… even as the cannabis industry has surged.
Then there’s the clinical-stage cannabinoid (CBD)-based drug developer Zynerba Pharmaceuticals (ZYNE). Zynerba’s shares tumbled 70% since their April 2017 highs.
These are only two examples in the long list of failed pot stocks.
Now don’t get me wrong, there is opportunity in the cannabis industry and plenty of pot stocks have seen their shares rise by thousands of percent.
A Wild, Crazy Ride
The cannabis industry has also been in the spotlight recently because we’re nearing October 17… this is the day in which recreational marijuana will officially become legal in Canada. Our neighbors to the north will become only the second country in the world to legalize the drug (Uruguay legalized it in December 2013).
Shares of Canadian marijuana producer Tilray (TLRY) have been in the spotlight recently as shares have been on a wild ride. For instance, on September 4 shares traded at $77 each. Nine days later they closed at $119.76, (a 56% increase). Just six days after that (on September 19), shares closed at $214.06. So, in a short three weeks, shares of Tilray climbed 180%, pushing its market cap over $18 billion.
Keep in mind that Heico has annual sales of more than $1.2 billion compared with Tilray’s annual sales of $28 million.
What’s perhaps even crazier is that on September 19, shares swung from an intraday low of $151 to an intraday high of $300. That’s a nearly 100% swing in a single day. The stock was even halted five times for volatility. (Shares have since fallen to around $141.)
Welcome to the world of pot-stock investing.
If You Really Want To Take A Flier, Do This…
I know there’s considerable interest in this space. I get questions from friends and family on a near daily basis asking which pot stocks are my favorite. And I’ll tell you exactly what I tell them…
It’s a tough space, but if you want to take a flier on pot stocks then I’d go with the ones that other companies are investing in. For example, Constellation Brands (STZ) just invested $4 billion into Canopy Growth Company (CGC). Coca-Cola (KO) is reportedly in talks with Aurora Cannabis about producing infused soft drinks. Molson Coors (TAP) has tapped Hydropothecary Corp. as its weed partner.
Then there is ETFMG Alternative Harvest ETF (MJ), an exchange-traded fund that holds all of these companies and then some, if you’re looking for more of a one-stop shop into the pot industry. Regardless of which stock you choose, or if you even decide to venture into this space, wait for a big down day to buy. And as volatile as this industry has been, you probably needn’t wait long.