Three Things You Need to Know About Marijuana Stocks

Marijuana Stock
Photo: Drew Angerer/Getty Images

It’s been a wild ride for marijuana stocks in the past month or so, from legalization in several states to the great weed boom and bust cycle we’re witnessing in the stock market. Now is the time to keep sharp on marijuana stocks.

With that in mind, we’ve compiled a list of three different factors that any self-respecting marijuana stock investor should want to keep in mind.

Know Marijuana Stock’s Value 

You’ve heard it before (even from us), but it bears repeating: Be careful about the hype.

As James West of Midas Letter states, “Whenever any single market segment goes up consistently over days on increasing average daily volumes, the only question is when, not if, a hard reversal is on the horizon.” (Source: “Profit taking brings high-flying Canadian marijuana stocks back to earth,” Financial Post, November 21, 2016.)

That’s what we’ve seen in the market with Canopy Growth Corp (CVE:CGC, TSE:CGC)—down 21% on Tuesday—among others. The opportunistic boom that drove the share prices sky-high—increasing by as much as 173% from a month earlier—have now absolutely fallen off, and Canopy Growth may not have hit the bottom yet. Marijuana stocks have been volatile in recent weeks, and investors would do well to pay attention to the volatility before making a play, one way or the other.

Beware the Political Climate 

There’s a lot still to be settled in the political realm when it comes to marijuana stocks. You have different laws and enforcement agencies, or the potentially slow legislative process in a place like Canada, or any number of factors that could impact marijuana stock just when its rising valuation will translate into earnings.

Marijuana is (currently) a prohibited drug in many regions, after all. It won’t suddenly be willed into the market without further time and effort.

Watch the News 

VICE News investigation found that some marijuana producers were price gouging the Canadian government as they filled veterans’ prescriptions. The article claimed that they hiked weed prices unfairly. (Source: “High Prices: The cost of medical marijuana benefits for vets has jumped 5000% in Canada,” VICE News, November 16, 2016.)

While not named in the article, Canopy Growth issued a press release, stating that it does not charge different prices to veterans. The Canadian government has amended insurance coverage in order to prevent further price gouging. (Source: “Canopy Growth Corporation Welcomes Government’s Commitment to Maintaining Veterans’ Insurance Coverage,Yahoo!, November 22, 2016.)

All this demonstrates that little is set in stone in the weed industry, and in this dynamic environment, news, politics, and investors can all have a profound effect on shaping the direction of marijuana stocks.