Last October 2018, a few cannabis stocks had been beaten up. However, the growth was astonishing, and Canada had just legalized marijuana for recreational use. So, I included Cronos on my hot funds list in my nest egg pie charts. Within just a few months, by March 2019, Cronos had doubled. At that time, it was a good time to take profits, so I blogged about the rather lofty prices in cannabis. The industry was still strong in revenue growth. It was just a valuation thing.
Now, cannabis is again beaten up, with Tilray, Cronos, Aphria, Aurora, MedMen and other reputable publicly traded companies trading at 52-week lows.
Cannabis investing can be a bum trip if you buy high, hold too long or don’t do the work to separate the great companies from the scams. So, below are a few tips to ensure that your cannabis adventures are a delight, without the dreaded hangover.
Keeping Cannabis Investing a High (Not a Hangover)
1. The growth is real
2. CBD is ubiquitous
3. The execs and board are A list
4. The share price volatility is sobering
5. There are still some stock scams out there.
6. Not every company is great quality and not all will thrive.
7. Which company is the best investment?
8. What’s your best strategy in this volatile market place?
And here is a little more THC on each point.
Keeping Cannabis Investing a High (Not a Hangover)
1. The growth is real. Check out the Stock Report Card below. There is no other industry showing revenue growth of 100-1000% year over year. Even Tesla, a super-hot market disrupter, was only at 59% revenue growth year over year in the last quarter.
2. CBD is ubiquitous. The 2018 Farm Bill decriminalized hemp, cannabis and products that are low in THC. 33 states have legalized medicinal marijuana. Recreational marijuana is now legal in 11 U.S. states and Washington DC. (See map above.) A recent poll by the Pew Research Center found that 62% of Americans, including 74% of millennials, said they supported legalizing marijuana. Cannabis is legal in Canada and Uruguay, which is why so many publicly traded cannabis companies are based out of Canada and were listed on the Toronto Stock Exchange before going public in the U.S.
The next big move, other than having more states legalize recreational cannabis, will be when the FDA approves the use of CBD in food and nutritional products. Currently, CBD is not legal in “interstate commerce.” When this happens, new investors to the space could get a bit giddy.
3. The executives and board are A list. Not all companies are equal. Some are run by retail executives, like Green Growth Brands. Others, like Aphria, have a natural food guru at the helm. Still others are owned in large part by big tobacco or alcohol, including Cronos and Canopy Growth. Incidentally, Irwin Simon, the former founder and CEO of Hain Celestial who is now running Aphria, averted a hostile takeover bid from Green Growth Brands. Green Growth will have to pay Aphria $88 million for the unwanted courtship.
Tilray enjoys a very strong international advisory board, including Governor Howard Dean, the former vice chancellor of Germany and government officials in Portugal, Australia, New Zealand and Canada. Acreage Holdings boasts the endorsement of former Speaker of the House John Boehner, and a date-card takeover invitation from Canopy Growth (once marijuana is legal nationwide in the U.S.). Medmen’s board includes former LA Mayor Antonio Villaraigosa. Charlotte’s Web executive team is strong, with Deanie Elsner, the former president of U.S. snacks division at Kellogg in the CEO seat and a former Coca-Cola VP as the Chief Growth officer. However, the Charlotte’s Web board of directors isn’t as well-diversified as the other cannabis companies. The 6-person board includes two founders, four finance executives and one marketing specialist.
4. The share price volatility is sobering.
Due to the massive growth and tremendous upside potential, it’s tempting to just hang on, even when your company has doubled or more in share price. However, as 2019 has proven, a better strategy could be to capture gains, and wait for another opportunity to buy low – i.e. trading around the core. If you leave a little of your investment on the table, then you’re able to shoot the moon, should that occur. And if you’ve captured your gains, you’re in a great seat to buy low, if the share price corrects again.
The reason for the volatility is three-fold. First, it is happening because many of these companies soar to overpriced heights, and become too expensive. Second, hedge funds and experienced traders like capitalizing on volatile industries. Also, since 2019 is the late stage of the economic cycle, weakness in the overall market can affect everything, including this hot industry.
5. There are still some stock scams out there. There are still penny pot stock scams that are preying on unsuspecting investors. So, you must know the company and who’s running it before you click the buy button. Do not just trust the promises you receive in a marketing brochure, in an email or in a social media campaign.
6. Not every company is great quality and not all will thrive. At some point, there will be more differentiation by product. Which offers the nicest experience? Which are non-GMO or sustainably grown and harvested? Which company will be the first to infuse CBD or cannabis into an adult beverage or Point of Sale product? Which company will become the Coca-Cola of cannabis?
7. Which company is the best investment? In a rapid-paced marketplace like this, a competitive edge of 1% can snowball into a market share of over 100-fold. So, today’s rock star could be tomorrow’s has-been. This is an industry and an investment that you’ll have to babysit. Stay in touch with what’s going on with the FDA, which states and countries are legalizing and new products that are coming to market.
8. What’s your best strategy in this volatile market place? If you’re not willing to apply a trader’s strategy, you might not have a great experience with your dabble into cannabis. Anyone who jumped at Tilray for $300/share is pretty sobered up with a share price of $31/share. And even though the revenue growth of this hot industry is likely to continue to be astonishing, as more and more states and countries loosen their cannabis, CBD and hemp policies, we still have to deal with the fact that the stock market itself could go down. The GDP growth numbers are widely predicted to weaken this year worldwide, including in the U.S. and Canada.
The highs and hangovers of cannabis are largely because this is a very new industry in terms of legality, but a very old industry in terms of product. Pot has been around for decades. It’s now partially legal, so companies are able to book their revenue (instead of laundering it through fake businesses). Some of the old gangsters are running the companies, and others are now cultivating the product as the experts.
The simple truth is cannabis and CBD are here to stay. It’s only a question of when your state or country gets on board. And it is the fastest growing industry in terms of revenue growth on Wall Street. Nothing comes close.
Full Disclosure: I have positions in a few of the companies listed in the above Stock Report Card.
If you're interested in learning the strategies I developed, which earned me the ranking of #1 stock picker above over 830 A-list pundits, then join me at an upcoming Investor Educational Retreat. Visit my home page at NataliePace.com, click on one of the flyers below or call 310-430-2397 or email info @ NataliePace.com for additional information.
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.