Marijuana Companies Shouldn’t Let Their Feet Off the Gas
The marijuana market is maturing. That may seem obvious, but we often forget what that entails. With market maturation comes a change in focus, with some pot companies focusing on profits instead of growth.
That’s a common evolution that we see in virtually every emergent industry. But making that shift too fast could cost marijuana companies millions of dollars in future revenue. Unfortunately, that’s a mistake that several major pot companies are making.
Remember that about five years ago, there was virtually no legal marijuana market. There was no major economy with legal marijuana. There was no major U.S. politician supporting marijuana legalization. There were few, if any, U.S. polls showing a positive attitude toward marijuana legalization.
Fast-forward to today and we’re seeing major progress in all of these areas.
We’re also seeing some marijuana companies focus more on profits, to the detriment of growth. In my view, this was premature when I first saw it taking place in 2019, and it’s still premature today.
Why? Because there’s so much opportunity for growth in the marijuana market. If pot companies are overly focused on profits, they could end up missing out on the future potential of the industry.
We’re set to see marijuana legalization expand around the globe in the next decade. The U.S., the U.K., Germany… there are many countries that could federally legalize marijuana in the next few years, creating a market worth dozens—maybe even hundreds—of billions of dollars in a few years.
Note that the largest publicly traded marijuana stock, Canopy Growth Corp (NYSE:CGC), currently has a market cap of about $10.0 billion.
Pot stocks have nowhere near maxed out their potential global market cap. And if marijuana companies look to cut employees and facilities, and otherwise tighten their purse strings, they’ll end up missing out on bigger profits in the long run.
By not investing in the foundations to fully exploit their market potential, large pot companies are going to leave room for competitors to challenge them.
With the competitors developing in a climate where they’ll easily be able to have initial public offerings (IPOs) on major U.S. stock exchanges and rake in some serious capital from institutional investors keen on getting in on the ground floor, we could see new major U.S. marijuana stocks sprout up almost overnight.
Letting that happen would be a huge mistake for the existing marijuana companies. It could cost the current pot companies enormous market share down the line.
So what does that mean for marijuana investors? It means it could be a good idea to invest in pot stocks from companies that are intent on growing their presence in the market.
We should really look at this on a long-term continuum.
Sure, surging profits in the present will see certain marijuana stocks soar as they impress investors with a great quarterly report or two. But after those quarterly reports come and go, many investors will be focused on growth.
If marijuana companies can’t show growth and begin to top out on their profits, then that’s it. They’re not really going to create a lot of value for investors.
While there are always more opportunities for pot companies to grow in the future, there might be no better time than now to invest in the marijuana industry.
That’s because new markets are opening up and very few of them have established companies that have totally maximized the market.
That means there are opportunities for the large, existing marijuana companies to stake out claims for a bigger share of the pie. After all, they have the production capacity, knowledge, resources, connections, etc. to get a massive leg up on any future competition.
If they start to slow down their investments in production capacity, research, development, and expansion into new markets, they’re going to miss out on huge opportunities later on as the legal marijuana market expands.
In other words, pot companies shouldn’t mortgage their future for the present.
Therefore, investors ought to look for marijuana companies that are willing to invest in future opportunities. In my view, that’s the best way for pot stock investors to see major gains.
The best things in life come to those who wait. It’s a cliché, sure, but I believe this holds true in the marijuana stock market.
There’s a very bright future for the marijuana industry. Almost no one denies that. What is up for debate is just how bright, and when we’ll start to see the light break over the horizon.
While I don’t have exact answers to those questions, what I can say is that daybreak is inevitable. Marijuana will eventually be legal in the U.S., Europe, Asia, and pretty much the whole developed world in the next few years (or decades).
Following that logic, any company that’s able to position itself now to profit from these nascent markets should be able to extract the most value later.
Pot companies that remain overly focused on profits in the present are the ones that may very well end up kicking themselves later as they’re left in the dark while rivals who were more forward-thinking get to bathe in the light.