With the legalization of marijuana, we are witnessing a major shift in the public’s attitude toward this substance, whether it’s among those who consume it or those who see a potential financial gain. A green tide is rising and it just might lift all boats. Seeing as this is a new and young market, the possibilities are endless and everyone wants to take a piece of this booming industry.
Factors such as public support for marijuana, high demand, investments, new job openings, and the overall economic impact and its tremendous potential obviously make this venture the new gold rush. However, like anything new, this type of business can be slightly unstable in the process of its first steps. Consequently, the Canadian market is currently experiencing some turbulence.
There are four most followed stocks in the cannabis market in Canada, Aurora Cannabis, Canopy Growth, Cronos Group, and Tilray. In November, these four, among others submitted their latest financial reports according to which, Aurora and Canopy made the largest profits when compared to the other two.
Although things seem rather optimistic about the future of this industry, exercise caution. We have already mentioned, all ventures in the early stages of formation are risky. Even recent news headlines send mixed messages. Although some are heralding profits of up to 5 billion dollars annually, and certain companies are boasting record profits, there are reports of companies such as Aurora Cannabis dropping 1.5 percent in Canadian trading.
When it comes to others, Tilary has lost 20 cents a share on revenue of 10.5 million dollars. As for Cronos, they have lost 4 cents per share, but their revenue rose 187%. Similarly, Canopy Growth recently reported a fall of 1.8% in the stock market. Despite this, Tilary CEO said in a recent statement that the cannabis industry remains robust and that are very pleased with their revenue. Moreover, Tilary has signed supply agreements with five Canadian provinces for the recreational market.
The situation in Cronos is looking rather good as well. Cronos already sells in four provinces which represent 50% of the Canadian population and expect to secure additional provincial listings. Furthermore, Cronos is also turning its eye towards cannabinoids. Namely, through two partnerships, this company is set to examine skin-care treatments by harnessing the potential from cannabinoids.
The other partnership will focus on producing cultured cannabinoids due to the fact that the quantity of “pharmaceutically relevant” cannabinoids is insufficient in typical cannabis plants.
For those of you who are interested in investing in marijuana stocks, there are several categories for making investments such as marijuana growers, marijuana distributors, marijuana retailers/dispensaries, ancillary services/supplies providers, or even biotech.
All you need to do is buy shares. However, we must warn you of some potential risks. Namely, there are three major risks that you should be aware of.
The first one is valuation risk. The valuation of marijuana stocks has increased so much so that the share prices more than reflect the stock’s growth prospects. Additionally, marijuana stocks are not profitable yet and that makes the process of valuation more challenging.
Next, there is a risk of dilution. Essentially, dilution is the process of a company issuing new shares in order to fund operations or expand the business. Of course, there is always a possibility for the risk of dilution to diminish if a company becomes consistently profitable.
Finally, there is commoditization risk. In short, that would mean a product becoming indistinguishable from other products. The only or the most dominating differentiating factor is the price. Right now, the commoditization risk might just be the smallest one if we consider the number of countries which have legalized marijuana, either for recreational or medicinal use.
All things considered, investing in marijuana stocks seem rather appealing, and for good reasons, too. My advice would be to act in a smart way, choose the right company, and of course, be cautiously optimistic and patient.