Is It Too Late To Buy Cannabis Stocks?
If you're interested in buying cannabis stocks you're no longer part of a minority group. Far from it. The masses are now involved thanks to Tilray's stock trading in a $186 range last week (Low $114 to high $300).
At its peak valuation of $20B, Tilray was worth more than companies such as Chipotle and Nasdaq trading at 1000x its $20M in revenue last year.
On Wednesday, "Tilray Stock" came in at number two on google searches with over 200,000 queries.
The search query, "Cannabis Stocks" spiked to a 100 last week on google trends (100 being the highest ranking topic in comparison to all other searches).
Remember Bitcoin back in December/January? We all know what happened shortly thereafter.
Are you too late to invest in this new industry? Like most things investing related the future is unknown. So, I like to ask, what do we know?
- Cannabis stocks have become extremely trendy and are now a hot topic of conversation. This means that if you're buying now you're far from being early and risk buying into a speculative frenzy.
- Right now there are 118 licensed producers (LPs) in Canada and climbing. In May 2017 there were another 428 applications in progress. That's a lot of new production potential that will require sufficient demand in order for producers to make money. Controlling production costs, distribution and marketing will become extremely important for new producers.
- Supply and demand forecasts for cannabis are wide ranging and very difficult to come up with. I won't quote any numbers as most of the forecasts found online are bias.
- My list of cannabis related stocks has now grown to over 52 and this doesn't include the 90 plus listings on the CSE (Canadian Securities Exchange). That's an awful lot of publicly traded companies competing for investor's money.
- Like any new industry, opportunists rush in trying to take advantage of being early and those that are late or have flawed business plans will eventually go broke.
It's clear from the above chart that we are in the later innings of this ball game. However, the cannabis industry is real and will only grow as global acceptance increases and the stigma of smoking or using cannabis fades even more.
There are still many unknowns moving towards legalization in Canada and as the industry matures, it will become more obvious what investor's can expect in returns moving forward.
For now, this is a momentum and news driven market that favors those who can stomach volatility and have the experience to take advantage of the shorter term opportunities.
Buying the cannabis stock "du jour" without a proper plan in place is sure to have a bad ending.
For the patient long term investor, I believe there will be plenty of time to invest in the industry. As the volatility around news events continues, it will provide opportunities to enter the most financially sound and well run companies at decent prices.