Medical Marijuana Stocks: The Next Dot Com Bust?

 

According to the latest news, marijuana stocks are the next dot com market explosion, both in terms of extraordinary payback and widespread scams. Everyone has an opinion on whether cannabis stocks will turn out tomorrow’s millionaires or or just fall off the edge of a false high to their death below.

What is really going on and how do you find out?

First lets unpack the myth that cannabis stocks are even comparable to the dot com boom. The rapid launch of new tech companies onto the stock exchange was to raise funds so that genius geeks could create and distribute progressive new products.

Actual products, in many cases, existed only on paper as described in company bios and in glossy brochures at fund-raising events. Management teams were not only untested, but garnered more “cred” if they were inexperienced young nerds who had a closer relationship to their computer than to any living being. Clearly, this scenario was a recipe for investment disaster.

Fast forward to current cannabis stock offerings which are seeing similar 100 to 300% increases in value in a single day. That astounding increase in value is where the comparison ends. Why?

Once in a Lifetime

Dr Doug fattening cannabis budEvery dot com that created a new product also had to create a market for it’s product. Yes, the market for tech toys already existed, but they had to convince people that they needed to upgrade their tech game with a shiny new object that may or may not work.

Somehow, inexperienced geeks were going to create a stellar product that had fully developed management, distribution and production systems alongside rolling out a competitive marketing scheme.

At the end of the day, the better products were picked up by tech firms with more management and market experience, a handful of products actually broke through to stand on their own, while the majority collapsed into the smoking pile of burnt cash now known as the dot com crash.

The current market for cannabis looks nothing like this. Coming out of 80 years of failed prohibition, cannabis consumption preexists it’s own legal market.

A vast number of people do not need to be convinced that they should purchase an additional shiny new object, they just want to attain cannabis legally. They are an untapped market waiting for their product. This is a rare historical scenario that was certainly not in play with tech stocks and may not happen again in our lifetime.

Post-Prohibition Millionaires

cannabis in pestlePeople who were alive when alcohol prohibition lifted saw investors become millionaires overnight. For example, in Canada Samuel Bronfman went from running whiskey in the prairies to owning a private bank and advising government policy on liquor control and distribution.

Ending prohibition creates tremendous wealth for the people who know how to negotiate it’s fluctuations.

However, cannabis is likely to have less fluctuation than alcohol for a number of reasons, one being that it’s route to legalization is two-stepped.

In many countries we get to assess the benefits of it’s medicinal start up before seeing it become legal for recreational use. The customer base for each of these uses is enormous by itself.

Unlike alcohol, cannabis has broad medical as well as recreational applications. Legislation such as Canada’s Access to Cannabis for Medicinal Purposes Regulations (ACMPR) enacted in 2016 allowed an initial step in legalization wherein companies could get licensed to meet the demand.

No prior demand was held at bay for tech products and no two-step system existed to aid the market transition of alcohol. Likewise, no start-up test location was available such as Canada or Colorado to see if the product and the companies who produced it would fly or fail.

Managing to Get Higher

hand with compassUltimately a new stock succeeds on the strength of it’s management team as well as it’s market demand.

It takes good management to remain creative while implementing the structure and systems that ensure quality control and consistent production.

At the same time they need to be flexible enough to adapt to the changing conditions that a growing market share throws at them.

It is here that we see cannabis stocks really shine since grow-ops have been in an operational development mode for decades, spinning off their own line of research and products. Licensing gives the green light to simply expand on that experience.

What is new to this scene is the management group who can take a portion of the marijuana sector from private to public offering. The word “new” here should be put in quotation marks since it has taken at least five years for any company to show up as a ticker on a stock broker’s list.

Indeed, the first cut for most companies is whether they can make it through the myriad and in some cases ill-defined regulations to become a licensed producer. This journey is not for the faint of heart since a proficient management needs to jump through the hoops of government regulators as well as jumping through the hoops of an initial public stock offering (IPO). No such regulation nightmare tested the mettle of dot com start-ups.

What is the Cannabis Market

crop of cannabisI have saved the biggest reason to trust that buying medical marijuana stocks is not just a repeat of the dot com fiasco for last.

Cannabis is not a manufactured product, it’s actually a commodity.

It’s a crop, an agricultural product like wheat or corn. It’s not a consumer product like sunglasses or iPhones which can swing in or out of style and which will always be replaced by the next version of themselves.

A commodity is a base product that can be used on it’s own, but is commonly made into other things, such as cannabis oils, tinctures, edibles and extracts.

In addition, a commodity is graded so investors know what they are getting. Marijuana grading has been developing and exists in many variations. Should cannabis be listed on the commodities market post-legalization, these grading systems will be standardized and a whole different picture of cannabis investing will emerge.

For some savvy investors it’s not a question of whether this development will happen, it’s a question of when. The issue of investment market diversification and hence expansion was not even on the table for dot com companies.

Marijuana Stock News

happy womanOK, so that was not really the last point, there is actually another big reason to buy marijuana stock.

Cannabis simultaneously embraces an established market and a new market that is developing at an astonishing rate.

The underground recreational use of cannabis has existed for over a century. It took a huge lunge forward during the freedom movements of the 1960s and its popularity has continued to grow.

In comparison, medicinal uses for marijuana are in the midst of research and development with a plethora of products bursting onto the market over just the last two years such as drinks and CBD capsules. At this point the dot com scenario is not even applicable and there is no market in the world today that holds such exceptional potential as cannabis.

In stock market lingo, you can see that I am quite “bullish” on whether to invest in cannabis. I’m not that way due to some ethereal reason such as I “believe” in it, or “have a feeling” it’s going to do well.

The material and historical facts of the matter themselves weigh in favor of a positive outcome in this investment. Of course no one can predict the future, but if I had to make an informed guess I would place my bets on the likelihood that — true to it’s name — this weed will continue to proliferate in terms of both products and profits.

What’s Next

pile of cash money Canada is on schedule to move into recreational legalization in July 2018.

California rang in the new year by legalizing cannabis on January 1st 2018 and New Hampshire followed suit four days later.

This is setting the tone for a sizable list of states who are willing to support a cannabis market in direct defiance of the current US federal administration.

These politicians are not thumbing their noses at the White House based on a pie-in-the-sky bet on cannabis. They have done their homework and noted how the success stories of other states quickly unfolded.

The risk for them is allowing the bottomless debt of drug war policing and prisons to continue rather than generating badly needed state revenue through cannabis legalization. Again, this isn’t about beliefs or old moral codes, it’s about what makes social, medicinal, political and economic sense.

I am going to continue to consider the topic of cannabis investments, but you might want to know which are the top medical marijuana stocks or where to buy marijuana stocks. Look for a follow-up article to this one specifically on the sticks and stones of how to invest in the cannabis market.

If you are interested in this topic and want to be kept abreast of new articles published on Best Cannabis Gear, please subscribe to the email notification list.

 

Questrade

10 Replies to “Medical Marijuana Stocks: The Next Dot Com Bust?”

  1. Doc, I really like your article. Marijuana prohibition is one of the stupidest things the powers that be ever instigated.

    Never look at past examples must be their mottos. Afterall, what did the liquor prohibition do. Well made a lot of backwoods stillers a lot of money, created Speak Easy Shops (usually hidden and visited by many prominant people) and made the procurers of this product criminals. A clean sweep.

    If you read any of the history of dope’s banning it is a chaotic mix of secrecy and powerful monied peoples. It came about from racists to whip up racial tension and the monied people to stop competition by cheaper, healthier and more environmentally friendly material alternatives.

    Idiocy and greed strike again.

    A final thing, is the portrait so many people have of dope users. That of the hippy style. Well they are wrong! The proportion of users that are not ‘hippies’ is much higher than those who are.

    Let’s hope the common person, like me, does well at investing in these stocks. After all the avoiding of the ridiculous laws we deserve to get in on the ground floor of investing. So let the large pool of respectible ‘users’ benefit from their usage actions.

    Now all I have to do is figure out how to do this!

    Great article. Well researched and written.

    Ciao
    Helen

    1. Thanks for your comment Helen. Yes, you know your history on this issue — I see the “drug war” as a permanent excuse for otherwise inexcusable racial profiling and outrageous policing practices. I bought a house in Minneapolis that had been raided by the police for drugs by accident. They did extensive damage to the premises, realized their mistake while freely ransacking the house, then walked away without even apologizing. The former homeowner had to pay for all the repairs. All of that for a drug that has never killed anyone and causes less than 10% of the harm that results from the abuse of asperin. Full legalization cannot come soon enough. 

  2. Nice post!

    I see a lot of investors who say No don;t invest because of the risk. What I am finding out is that they don’t want people investing because they want in on the ground first.

    I have been doing research on different companies to invest with but i come up short.

    So now i am researching the technology in marijuana growth.

    Do you know of any companies to stay away from?

    Thanks for sharing,
    Shannon Kamal

    1. Thanks for you comment Shannon. I am wary of cannabis companies who are a group of investors buying up growers or other smaller cannabis companies. Some of the more popular investments fall into this type of “canopy” business, but I still back away from them. I dont know if they know what they are doing with cannabis or are just people with a lot of money who want a piece of the pie. If things get rough will they stick around or duck out for greener pastures over yonder? What is their commitment to cannabis culture? And the biggest question for me, where where these investors with all their money when activists were fighting to change the laws? So I tend towards the companies who have their hands in the soil rather than the “buy up guys” because I want to see the proof of commitment. It makes me happy to invest in cannabis because its putting money towards something I believe in, so I want their business model to be something I support as well. 

  3. Yes, you are right on about the Medical Marijuana industry. Right now it is in its infancy, but like you, I feel it is something we should be looking at, as investors.
    I have been hesitant to purchase any stock at this time, because of all the government issues involved. I have been looking at a couple of Canadian stocks, I think they are a little ahead of the Americans as far as making it a viable industry. Best to You Wayne

    1. I would agree Wayne, the Canadian situation is more formalized at this point and there is no question that investments in the cannabis industry will grow. Its more a matter of which stocks. The Canadian stock situation is interesting because they are seeing action from OTC (over the counter) trading in the US in the absence of a cannabis index there. However, one thing to keep in mind is that the 8 states who have legalized cannabis in the US so far (Jan.2018) and dozen more who have decriminalized possession has more population sum total than all of Canada. That is a lot of buying power even if the status of cannabis at the federal level is unstable and it helps to stabilize the market in Canada. 

  4. Well this is interesting. I was actually researching medical marijuana for completely different reasons, but when I saw the headline of your article, I was intrigued.

    What you say in your article certainly makes a lot of sense, and simply jumping on board the medical marijuana bandwagon doesn’t guarantee instant wealth, but it’s not like the fiasco of the early tech boom, like you say.

    It’ll be interesting to see how things progress with medical marijuana and its investment possibilities. Can you say more about how to buy these stocks?

    1. Yes, great question. If you purchase through your bank you might find that they resist selling you cannabis stocks and will try to divert your investing money to another stock. Please keep this in mind — if your broker is free to you, then someone else is paying them. This influences the “advice” they give you. Instead I would advise that you skip these salespeople and start an investment accout yourself at a low fee brokerage such as Questrade. You can set it up online and there are several ways to transfer funds into your account to start trading. Doing your own research and trading your own stocks will net you more knowledge than what your bank or money manager knows about cannabis stocks. They are reading sector overviews that are influenced by players such as big pharma who do not want to see investment funds diverted to their medicinal competition. 

  5. Great article on cashing in on the crop! I think you have shed some real light on an upcoming possibility.

    do you think the stocks in these types of companies would follow blue chip stocks? Or do you think they will come out as a penny stock option?

    thanks for a great read,
    brendon

    1. Thanks for your comment Brendon. The stocks have come out as penny stocks on the Toronto Stock Exchange (TSX) which is one of the major exchanges in the world. In the US, due to various states of legality, these very same stocks are trading OTC or over the counter. The OTC designation can indicate a sketchy stock, but dont let it be the sole indicator of a stock’s value. These are OTC due to federal legislation and not due to the stock’s true worth. Penny stocks are a great way to buy into cannabis. Its a small investment for a potentially huge gain right now because we are at the very beginning of the market build-up. 

Leave a Reply

Your email address will not be published. Required fields are marked *