Should You Invest in Marijuana Stocks?
One of the most exciting new investment opportunities opening up is the marijuana industry. With multiple companies showing returns of more than 100%, you have what has turned into one of the more attractive sectors for investors in 2017. But is this the right move? Is there a marijuana bubble? Are marijuana stocks worth it? And, most importantly, should investors invest in marijuana stocks?
In this piece we’ll look to tackle those tough questions and set investors on the right path to a properly balanced portfolio, whether that includes pot stocks or not. But before we jump into specific companies and industry trends, let’s look at what make the marijuana industry so volatile in its infancy.
The Politics of the Pot Industry
Some investors and analysts would rather focus on numbers only and ignore the political side of things. And for certain industries, you can get away with that. Marijuana is not one of those industries.
Much like gold, marijuana investors can hardly afford to ignore the influence politics exerts over pot economics. Or at least, if they do, they do so at their own peril.
The reasons for this are, if you think about it, quite obvious: Marijuana is not legal in many countries.
In order for marijuana companies to truly explode in terms of sales and therefore justify their current market caps, they need to tap into an unfettered recreational market at some point down the line.
Now, in countries like Canada, that seems to be on the way. The current federal government has promised marijuana legalization will land in July of 2018. (Source: “Liberals to announce marijuana will be legal by July 1, 2018,” CBC, March 26, 2017.)
But in other countries across the world, the outlook isn’t quite so bright.
Many nations have begun instituting medical marijuana laws that will legalize at least that application of the drug, but total legalization seems a long way off.
The problem is that the wheels of politics turn slow, if at all. And worse yet, sometimes they even turn backwards.
Take the U.S. While President Barack Obama was by no means a pot enthusiast, at least the marijuana industry could count on the U.S. president to stay out of the way of states that were looking to legalize the drug.
Under his administration, dozens of states began the legalization process of marijuana in one form or another, with eight states having passed recreational marijuana laws, and the 29 states that have voted to legalize medicinal marijuana.
Under President Donald Trump, however, the outlook for marijuana looks less certain. Or at the very least, less safe.
While Trump has echoed Obama’s policy of leaving the question of marijuana legalization up to the states, many of those within his cabinet, like U.S. Attorney General Jeff Sessions, have claimed that they pursue a more stringent policy against pot.
Of course, such news cannot be good for the marijuana industry.
Even as a Gallup, Inc. poll, taken in October 2016, showed that 60% of Americans approve of legalizing marijuana, the U.S. seems to be taking a backwards step in terms of pot acceptance. (Source: “Support for Legal Marijuana Use Up to 60% in U.S.,” Gallup, Inc., October 19, 2016.)
Chart courtesy of StockCharts.com
Canada Legalizing Marijuana
Even while the U.S. carries on towards what may be a backslide in terms of marijuana legalization, Canada could use several states that have successfully legalized the drug as models to follow, as well as get an insider look at all the difficulties and obstacles that come with the legalization of marijuana. This could be a great first run for those looking to invest in marijuana stocks to test the market.
And the pot business is gearing up for what could be the biggest driver of marijuana stocks in 2018—when the drug will be fully legalized in Canada.
A two-day cannabis conference was held in Ottawa. Vendors gathered to discuss business opportunities as well as lay out plans for what the business will look like when the drug is free for purchase.
Questions also abound as to just how the government will regulate ancillary issues tied to the pot business, like advertising. For instance, if the drug ends up being treated similarly to cigarettes (no advertising, packaging mandates to show dangers, etc.) that could impact sales. (Source: “Licensed marijuana producers lobbying government to allow pot advertising in hazy new legislation,” Financial Post, April 14, 2017.)
Of course, this is all secondary to the fact that the marijuana market in Canada will make money—likely billions—when it is legalized, but all these side considerations will dictate just how much money these companies can rake in, both early on and in the long term. Knowing the general layout of the market and the ins and outs of what the government is seeking to legislate should be a priority for any investor looking to jump in on Canadian marijuana stocks.
The Best Marijuana Stocks in Canada
Since Canada has the date and time set for legalization, naturally you’d expect many of its pot stocks to be some of the most profitable in recent months. And you’d not be wrong.
Take Canopy Growth Corp (TSE:WEED). With a market cap of around $1.5 billion, this company dwarfs most of its competitors in terms of size.
While 2017 so far has been filled with both starts and stops, the company hasn’t managed to rate a sustainable gain since the new year started. Over the past 12 months however, WEED stock has seen over 191% growth.
And these numbers are only going to be boosted, especially early on, by Canadian legalization when that does hit mid-2018.
Other companies that have shown strong growth in the Canadian market include Aphria Inc (TSE:APH) and Aurora Cannabis Inc (CVE:ACB). Aurora has registered nearly 4900% growth in the past 12 months, making it one of the fastest growing stocks around, let alone in the marijuana market.
APH stock, meanwhile, saw returns of over 300% in the past 12 months.
This points to the fact that many Canadian pot stocks have strong room for growth moving forward, especially with the all-important legalization day approaching in 2018.
The Best Marijuana Stocks in the U.S.
Just because the marijuana legalization push in the U.S. is probably going to take much longer than Canada’s in terms of hitting the federal level, that doesn’t necessarily make the U.S. a weaker market.
Take California. The most populous state voted to legalize marijuana in November 2016. And while the Trump administration could make things difficult for the state if it so chose, California represents a larger market than Canada for marijuana purely going on a consideration of population.
Add in the other states that have legalized recreational pot like Oregon, Colorado, Washington, and Alaska, and you have a market that is already larger in terms of raw numbers compared to Canada.
This market is also riskier due to the ability of the federal government to meddle with these laws. But for now, there’s still good money to be made from marijuana stocks in the U.S.
Cannabics Pharmaceuticals Inc (OTCMKTS:CNBX), for instance, has seen strong growth to the tune over 2100% in the past 12 months. In 2017, the stock has already amassed over 100% in gains, although it did suffer a massive spike followed by a steady decline. Still, the stock has been a strong performer.
Axim Biotechnologies Inc (OTCMKTS:AXIM) is another 1000% performer over the past 12 months, and another strong stock that is likely to grow in the future.
Is There a Marijuana Stock Bubble?
We’ve gone over some of the best stocks in both the U.S. and Canada, and demonstrated that there is definitely money to be made in this industry, but in terms of stability, what are we dealing with here in marijuana stocks?
The fact is that both through the political arena as well as plain old economics, there’s a fair chance that many of these pot stocks floating around these days could collapse. The industry has a lot of hype surrounding it, and a lot of that hype is based on a market that—while numbers and research show is there—has yet to be proven in terms of sales, at least on a large scale.
If you’re looking to invest in marijuana stocks and the pot industry, there are a ton of ways to make money, but investors should know that this isn’t the most solid asset to trade. There are a great many questions surrounding weed as a whole, and therefore there is a certain level of volatility that investors have to be willing to stomach if they want in on the market.
That isn’t to say that this is a bad investment. Far from it. After all, if I knew of a stock guaranteed to attain strong growth with little to no risk of a slide…I mean, I’d still be writing here because I love it, but I’d at the very least be driving a nicer car.
The point being that there is a risk-reward dynamic baked into pot stocks—maybe more than other industries due to unpredictable political outcomes. But there is also money to be made. And the best marijuana stocks could see some investors get very rich in a short period of time with a lot of planning and a little luck.