OCT 31, 2018 10:37 AM PDT

Pot Stocks: What Investors Should Know

WRITTEN BY: Amy Loriaux

This is not to be taken as investment advice. It is purely a news report.

It was only a matter of time. With the legalization of recreational marijuana in Canada and 9 states in the US plus Washington DC, the marijuana industry is now blooming into a legitimate, organized operation, with contracts with the Canadian government and with big beverage companies. When a business goes public, it is time to start taking things seriously from an investing and marketing perspective. As the celebrations of legalization die down, it is time to take stock (literally and metaphorically) of how the marijuana industry plans to firmly entrench itself in society's marketplace.

Photo Source: Pixabay

How is the bud business doing these days? Well, it was "blooming" (pun intended) at first. The Horizons Marijuana Life Sciences Index ETF (NASDAQOTH:HMLSF), the very first cannabis exchange-traded fund (ETF) to debut in Canada and made its way to the OTC boards in the U.S., closed at $20.06. During the following session, on Oct. 16, it would hit an all-time intraday high of $20.86. After that, it tanked. It is now in a bear market, and the most recent price (as of this report) is $13.93.

With all of the hype of this oncoming marijuana boom, why this hesitation in investors? Well, one of the reasons, as reported by the Motely Fool, LLC, an investor's guide to the market, is exactly that: the hype. According to Fool, investors seemed to have committed the error known as "buy the rumor, sell the news." Investors were sold on the prospect of the marijuana market. Now that it exists, they want to see some tangible results. It is time to get down to business.

Another reason has to do with limited product yields by marijuana growers. They just can't make it fast enough to meet the demand. This is not to say that there is a Canadian shortage of weed, but investors need to be careful and look longterm. Can the growers sustain or increase their output? Now, the other side of that coin is the threat of overproduction. When legalization passed in Colorado, Washington, and Oregon, growers produced cannabis without any mind to actual demand. This oversupplied the market which drove weed prices down and crushed margins.

Photo Source: Pixabay

Basically, the marijuana business is just not on a firm footing yet. Companies can strengthen their performance if they try to network with already established industries. For example, the beer industry has been eyeing the marijuana industry very closely. Cannabidiol (CBD) - infused beer, anyone? One instance of this is the story of the company called Canopy Growth, which received a $3.8 billion investment Constellation Brands. Constellation Brands owns Corona and Modelo. Constellation also vested itself in the growth of Canopy's business and will help to develop new products, like that CBD-infused beer, once they are legal to produce.

Previously in this newsletter, we reported how the pot business is starting to ramp up. Marijuana may no longer be associated with hippie stoners and tie-died t-shirts. Instead, it is looking like it's about to sell-out. Bummer? The video below goes into more detail.

Video Source: Youtube.com

Sources: www.bloomberg.com, www.fool.com, www.labroots.com

About the Author
  • I currently work at a small CRO involved in clinical trial management.
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