A Guide to Getting Started with Cannabis Stocks

Cannabis Investing

Are you interested in purchasing cannabis stocks or investing in the industry? These tips will help you make the right decision.

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  1. New bubbles are encouraged by excess liquidity within the system.


Whenever you combine an excess amount of enthusiasm and an offbeat asset class with few investing options for investors who are searching for the next hot thing, it results in an asset bubble. From a broader perspective, the pot stocks flash rally debunks the concept that the interest-rate hikes by the Federal Reserve are taking liquidity away from the financial markets. That is corroborated by all three of the major averages that are trading near or at new highs, with that feat being performed last by the DJIA around eight months ago.  There is still excess liquidity within the system, which fuels asset bubbles.


One year ago at this time something very similar was occurring with the blockchain and crypto asset. New highs were being set by the three main stock market averages, as well.  Overnight Bitcoin became a familiar part of investor lingo.  In January the major stock market averages experienced a peak over concerns of inflation and rising interest rates.  Bitcoin plummeted in value, and the larger crypto bubble popped, which left investors with huge percentage losses.


  1. These days pot is a commodity.


It is used all across the U.S., both illegally and legally.  However, marijuana is a commodity and so if farmers would like to grow it, then it could fairly quickly turn into a surplus crop. Any commodity, which includes ones that the market considers to be mainstream – natural gas, oil, and metals – are subject to both booms and busts. Remember how Bitcoin turned into a game of who could located the lowest electricity cost to mine it profitably?


Pot is a type of plant. It is ultimately all about who owns the best farmland for growing it on, the right weather, and abundant water.  No company is able to escape the highs and lows of the input costs, whether it is mining products or agriculture.  I wouldn’t underestimate the ability of American farmers to grow marijuana on a commercial, large scale. Companies such as Chipotle and Starbucks are constantly pricing their offerings based on avocados, coffee, and their input costs.  So cannabis-related companies are going to have these issues to deal with.


  1. To introduce an FDA-approved product into the market takes a great deal of expertise and money.

Food and Drug Administration

There is lots of excitement surround medical marijuana as well as biotech companies that are getting involved in alternative drug therapies that use cannabis that are not in the consumer market.  Energy drinks like Red Bull are still products that must be regulated. For vaping cartridges containing nicotine there is similar risk. It appears that this is a time when gaining access to consumer products with other benefits beyond taste and hydration are increasing. Cigarettes and alcohol definitely are regulated.  You cannot even purchase Sudafed unless you show the pharmacy your ID. Regulatory uncertainty in the market will remain a headwind well into the future.


Cannabis-based drugs most likely won’t be significantly increasing revenues anytime soon for big drug companies.  However, they are the companies that have the expertise and funding for developing new FDA-approved products.  There is a parallel as well to the bitcoin boom.  Companies have the ability for developing blockchain services and products, such as J.P. Morgan, IBM, and Alphabet will not see the promise reflected into their penny pot stock prices for some time, and that is why investors have moved over to the speculative, small niche plays instead.


  1. Oversupply of new, hot stocks will become saturated quickly.


Companies getting started these days as “pure pot plays” take years and numerous round of raising capital to turn a viable product out finally.  Leaders will certainly emerge within this space.  However, it probably will not be the smaller players that you are trading currently. A majority of cannabis stock literature you read is currently being hyped by marketers who want to get their hands in your pocket. Masqueraders will continue coming out of the woodwork.  There are all kinds of companies that are part of the pot business that will miraculously appear, and they all have great stories to tell. It will be nearly impossible to tell fact from fiction.


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