What to Know About the Cannabis Stock Bubble

One quick Google search of “cannabis stock bubble burst” will yield a disparity in results on the state of marijuana investment.

Some experts argue that cannabis revenue projections are overhyped, while others remain steadfast in their support and faith in the growing cannabis stock market. So, who’s right? Unfortunately, it depends on what factors you’re looking at. The global marijuana market is ripe with possibilities and risks. It’s up to individual investors to perform their due diligence and risk-benefit analysis.

It’s hard to argue with the dramatic earnings gained by early investors who took their chances on currently successful cannabis stocks. We’re halfway into 2019 and cannabis stock giants have suffered from considerable drop-offs in value since April 2019.

While hiccups in valuations can be a part of the game, how does one know when to tap out of the market? Despite a trend of financial losses, the cannabis market is poised for success, the question is: how much success?

Cannabis Stock Bubble Burst

Cannabis stock investment journalist George Budwell states that “since the start of May [2019], for instance, the major Canadian cannabis cultivators have lost, on average, a whopping 28.8 percent of their value.” Budwell argues that sales estimates were too optimistic, but there’s still plenty of market growth to warrant interest by investors. Previous global marijuana sale estimates ranged from $200 to $500 billion by 2030, but more conservative reports expect weed sales to be between $50 billion to $200 billion within the decade.

Corporate Cannabis Takeover

Marijuana stocks typically receive greater interest and success when larger companies buy shares of the cannabis company. As bigger companies invest in cannabis companies, they provide an influx of capital in a world where most banks are not willing to lend to companies in the marijuana industry.

Cannabis consolidation efforts target cannabis companies with hundreds of millions to billions of dollars in market caps.

While small craft cannabis farmers may fear a corporate takeover, consolidation can benefit many early investors in marijuana. As cannabis legalization continues, buyouts will continue to shape the cannabis market.

Cannabis Stock Obstacles

Cannabis consumption and sales continue to remain illegal under U.S. federal law, which restricts research and overall accessibility to cannabis products. American cannabis companies aren’t able to list on the New York Stock Exchange or Nasdaq.

Instead, they turn to cannabis-friendly stock exchanges like the Canadian Stock Exchange and the OTC Markets Group in the United States. Canadian companies, however, are able to trade on the big U.S. exchanges because cannabis is legal in their country.

Cannabis investors have to work with insufficient data on companies. Investors must also consider the problems faced with a cash-only business and sky-high taxes. In addition, cannabis sales are limited to a single state instead of interstate commerce that allows companies to participate in other states’ cannabis markets.

The black market has contributed to revenue losses across the world. These obstacles make it difficult to identify companies that can withstand a stock bubble burst. Among the rubble of dead pot stocks, there’s a glimmer of hope for those can invest wisely and have a pinch of luck.

Cannabis Stocks are Up

Keith Speights from The Motley Fool quells investor fear by putting the cannabis market losses in a greater context. Speights argues that “all of the top pot stocks have seen worse declines than what they’re experiencing right now.”

Stock declines in 2018 were worse than current loses. “Three of the five top stocks—Canopy Growth, Aurora, and Cronos—are still up by close to 30 percent or more so far this year despite the big declines in recent months,” he continues.

Cannabis Stock Investment

There are multiple options to invest in cannabis stocks for first-time or experienced investors. In order to temper your losses from the market’s volatility, you may want to diversify your cannabis investments. Investors can choose from a handful of exchange-traded funds (ETFs), which spread their bets out to multiple major cannabis-related stocks.

ETFs like the ETFMG Alternative Harvest own about 30 cannabis stocks for companies that directly deal with marijuana and others that facilitate the industry, but don’t touch the plant.

Canadian stocks have become a hot buy and the looming European marijuana market has investors hopeful at the thought of market growth. Other countries around the world also continue to declare interest in joining the worldwide movement toward legalization. If you’re interested in cannabis stocks, consider the following stocks positioned for success:

• Cronos Group (NASDAQ:CRON)
• Canopy Growth (NYSE:CGC)
• Aurora Cannabis Inc. (NYSE:ACB)
• Aphria (NYSE:APHA)
• Tilray (NASAQ:TLRY)
• Medipharm Labs Corp (TSXV:LABS)
• OrganiGram Holdings (NASDAQ:OGI)
• Hexo Corp (NYSE:HEXO)

So, what’s one to make of these turbulent sales estimates? The global cannabis industry is full of serious market hindrances. U.S. federal laws are punitive for anyone involved in the stock market. While the market is in its infancy, investors able to handle the risks can stand to make a considerable gain. Cannabis stock strategies are largely guided by analysis and gut feelings.

The key to smart investing is diligent and frequent industry and competitive research. What to know about the cannabis stock bubble? Time will tell, but the future of many cannabis stocks looks bright.

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