How Investing in Cannabis Stocks Has Changed and What to Expect in the Future
Before legalization in Canada back in 2018, there was a massive amount of speculation going on in the market when it came to cannabis stocks. Everybody wanted a piece of the pie and wanted to be the next cannabis company. We saw a massive amount of IPO’s and RTO’s hit the market, some companies exploded thousands of percent since their IPO. Now unfortunately a lot have started to trend downwards and struggle to survive. During times of immense speculation like we saw back in 2017 and 2018, it has paved the way for the cannabis industry today. Nowadays a new cannabis companies receive a lot less hype than they did before as investors are getting smarter and the industry is maturing. As time goes on we need to learn from the past and strive to become better investors.
The reason I am writing this article is to help new investors better understand the marketplace nowadays so they can have a better chance of succeeding when it comes to investing. As a millennial investor, it’s easy to be impulsive, naive and make financial decisions based on what’s trending versus actually doing your own research and due diligence and making solid financial decisions. In the past I have bought stocks that my friends have raved about, or after reading one quick article online that is painting a bullish case for the company. What any new investor should be doing is going to the actual company website, reading through their investor presentation, checking all of the analyst recommendations, making sure the companies financials are looking good and then deciding weather or no to invest into the stock.
In the current environment we are seeing companies, who are well positioned for global expansion and are producing cannabis for sale in the recreational and medical markets here in Canada, succeed as they were the companies that were actually ready for legalization. There are tons of small cap companies on the market that have been stuck in a nasty downtrend and will either go bankrupt due to competition and lack of profitability or will be bought out in the near future. Some notable companies that come to mind are Aurora Cannabis (ACB) and Canopy Growth (CGC). These are two of the biggest companies in the industry that have been on an acquisition spree since they came into existence. These are two great examples of the big players in the game fighting for market share and buying up as many companies as possible to gain a competitive advantage. These two companies are in a very different position when comparing the two as Canopy Growth has a large investment from Constellation brands and Aurora Cannabis is still independent.
When it comes to investing into the cannabis space in 2019, for a new investor a Large cap ETF like the Horizons Medical Marijuana Life Sciences ETF seems like a great entry point to get their feet wet, while still allowing them to own a diversified ETF filled with many large cap companies. From there it would be a great idea to take a look at the individual holdings within the ETF, thoroughly research the companies and make further investment decisions based on your own research.
If we look back to the dot com bubble we can now see that there were some huge winners that emerged from the pack, but there were even more losers which is why investing in cannabis in 2019 is still such a great opportunity, but it should be done with caution.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: The author has a Long position in Aurora stock.