Captain Vape gives you a brief idiot’s guide to pot stocks.
The year is 2015. Newly elected Justin Trudeau reminded us of that with his famous “it’s 2015” comment when introducing his 50% female cabinet. Finally a woman is the minister of foreign affairs! I was a very excited Canadian. I wasn’t excited about it being 2015, however; I was excited about marijuana becoming legal.
I’m sure you’ve thought about it or even went ahead and bought stocks in Canopy, Aurora, Aphria etc. Lets go back to 2015 and hear that spiel your buddy told you, how to get rich quick with pot stocks:
“The stocks right now are super cheap and when legalization is announced the price of those stocks will sky rocket. Once weed is legal these companies who have contracts with the government and will sell recreational marijuana to the masses and everyone will get rich.” -Everyone you know who has invested in Canopy (CGC)
Makes sense doesn’t it? Imagine investing in a start-up company in an industry that’s about to explode what could go wrong? Reality that’s what always goes wrong. None of these dudes (or dudettes! It’s 2020!!!) who gave me the above spiel are rich. So were they wrong? Should you bother investing in cannabis in 2020?
Lets go through this together like a fun adventure in a strange new place. Where money and marijuana flow in a river that ends in a devastating waterfall? Or maybe an ocean of cash?
The Bear Market
The cannabis industry is considered a bear market at the moment. While that may sound like a godless killing machine that will bring you riches I’m sorry to say that is not the case. Here comes that stupid reality again. What in the name of a grizzly is a bear market?
A bear market can be defined by the same variable but in two different scenarios. That variable is the price of the securities dropping 20% from it’s original price. This can happen in a secular scenario which means it will last years or a decade. So if we were to take a snap shot of a bear market from 2015-2020 we would see the graph indicating the worth of the stocks presented in a steady decline. The other scenario is called circular which typically lasts from a few weeks up to several years. The name bear market comes from the way a bear attacks: by swiping it’s claws downward. The opposite is a bull market because a bull attacks with its horns upwards. Who comes up with these?
Ok so where does that leave the marijuana industry? According to Forbes in September of 2019 the cannabis industry is very much in a bear market. All the top companies have seen their prices plummet to over the 20% benchmark which would classify it as a bear market.
A chance for a rebound? Or a rally?
If we are looking at a secular bear market stock rallies are common but the bad news is that they plummet back to their downward trend. Instead lets not focus so much on the bear claw destroying your portfolio but what is in store for this industry long term.
Cannabis was legalized in Canada October 17th, 2018. While the industry as a whole is not young the legal recreational marijuana industry is. There are multiple factors on why marijuana stocks have plummeted but will these factors cause permanent damage? At the time of this writing the novel corona virus crisis has shut down China and effected global markets. This is an existential threat to all publicly traded companies and has indirectly effected the Cannabis industry. In short- we’re not going to focus on the corona virus’ strangle hold on the markets in this blog because the sun will rise tomorrow. One day this virus will be a thing of the past like SARS and the swine flu. If not there won’t be a stock exchange to invest in.
Pretty dark eh? Here’s a picture of a cat with bread around it’s head:
Lets focus on what factors are directly affecting pot stocks and if it’s worth investing in?
If you’re a marijuana enthusiast in Canada you remember that fall when weed was finally legal and how big of a pain in the butt it was to get your purchased product delivered. It was common to hear of people waiting months to get their gummy bear edibles and the processing plant is an hour away from where they live.
When the government takes control of something they usually don’t look too far ahead and screw it up. These are growing pains but we are still feeling the effects of the bureaucratic red tape that was a huge road block for satisfying the high demand.
As of January 2019 Health Canada saw a backlog of 800 applicants for a sales license. Due to this massive backlog it can take growers up to a year to obtain a license to legally sell cannabis. As a result it contributed to a shortage of legally available marijuana products for the masses. But there is good news.
In May 2019 Health Canada announced new requirements to apply for a cannabis business license to reduce wait times. At first when a business applied for a license they needed to raise the capital to build a facility but didn’t need to have it built. Now the onus is on the companies to raise the capital and build the facility which satisfies all the requirements laid out by Health Canada. With all those requirements met the process of approving applicants will go much quicker which means more businesses satisfying the demand of legal marijuana.
As of May 2019 Health Canada states that currently 600, 000 square meters of land are now cultivating marijuana. That is enough to produce a million kilograms of weed. 1…million…kilograms…of weed! And that number will only go up.
One year after the legalization of marijuana the federal government of Canada legalized edibles, vapes and infused beverages. Edibles have the potential to become a billion dollar industry according to Investopedia. Edibles are a great way to sell cannabis to those who do not want to smoke the products. It can also appeal to those who are not interested in the “high” associated with THC. Infused beverages and edibles with only cannabidiol (CBD) and no THC can be sold as an over the counter medicinal aid for a variety of issues. The positive effects of CBD can help with pain, insomnia, and anxiety. There are on-going studies regarding CBD and if the effects are true so it’s not set in stone that it is a wonder-drug. However it is hard to deny its popularity and it’s not hard to research the effects of CBD.
This article has been written March 2020 and edibles haven’t been legal for a calendar year. Those who are curious about the positive effect of cannabis but don’t want the effects of THC or to smoke the product now have a great alternative. This will widen the customer demographic.
Should I invest or what??
No one has a crystal ball because if they did we’d probably be living in a Bif Tannen alternate 1985 timeline a la Back to The Future 2.
This is a website called Captain Vape with content filled with marijuana. Obviously we don’t believe this is a dying industry. Just because the charts show a downward trend and a lot of headlines show stock prices falling doesn’t mean it won’t rebound.
While the industry is in a bear market it doesn’t mean that billion dollar business decisions aren’t happening. This isn’t an industry that is going to go away. For example last year Molson Coors announced a new cannabis infused beverage. The big boys know there’s money to made.
If you have the available liquid assets to invest I believe it is a great time to get in on the action because prices are low. There is a lot of doom and gloom out there because of the industry’s current bear market phase and the current state of the global markets (As of March 2020). But there are some things to consider. This is a young legal industry. The current laws and red tape regulations holding it back will be updated. The supply will eventually catch up to the demand. Edibles might be the unicorn (or bull?) that boosts the industry with billions of dollars. Here’s a link to Investopedia that will get your research started on the best stocks to look at. The link also makes a case for an upcoming positive trend for pot stocks due to the release of derivative products.
Is it a no-brainer? Absolutely not. Nothing in life that’s worth anything is not without risk. However if you look beneath the surface of those scary headlines of doom for the cannabis industry you can see some light. After it’s all said and done it may only cost you patience.