Whether you are thinking of high value stocks, or penny stocks, here are a couple of simple considerations that should help when advising yourself on the decision to enter the cannabis investment market.
The sector appears to have been beaten down in the month of October. A closer look and you'll find many companies using harvest profits to invest long-term in new technologies and infrastructure designed to spur future revenue growth.
When answering the question, is now the right time to consider investment in marijuana stocks, a couple of factors need to be considered. For starters, what is your experience level in the stock market? What kind of investor are you? What level of risk are you willing to take?
Just like any other sector, you can easily wipe out your entire life savings if you do not exercise caution and practice due diligence with your investments. On the flip side, cannabis is one of the fastest growing stock sectors, and by investing properly, the "average joe" has a much bigger opportunity to make a fortune from the cannabis market then any other. There are no sure tricks, but we recommend hedging your risks to maximize your earning potential from the growing number of lucrative pot stocks.
Quick Recap: So, to answer the question of whether you should invest in cannabis stocks; yes, it is a good idea.
The MORE Act should eventually help to legalize cannabis at a federal level which in turn will boost both medicinal and recreational sales exponentially. (This should also come with extra perks such as the expungement of marijuana- related crimes.) But, as much as the potential to earn from this market becomes what can only be described as inexhaustible, a few considerations must be met before throwing a considerable stack of cash, or savings at just any player in the game. Much of this consideration is hinged solely on the fundamentals of cannabis companies, how they operate, what their long-term goals are, how much cash they have on hand, and are they earning, or are they burning...
Let's discuss a bit more
Fundamentals For Cannabis Stocks
The cannabis industry is extremely volatile and "exposed" due largely in part to the fluidity of the laws governing the industry. This may present a lucrative trading opportunity for those looking to scalp the market, but that doesn't mean scalping is the best long-term play. Scalping is a trading style that specializes in profiting off of small price changes. This generally occurs after a trade is executed and becomes profitable. Scalping requires a trader to have a strict exit strategy because one large loss could eliminate the many small gains the trader worked to obtain.
At the moment, scalping the cannabis stock market may not be the best investment strategy. A long-term investment approach will see to it that you benefit from the projected massive growth of the market. To be able to do this effectively you need to understand the fundamentals of the cannabis companies that you want to invest in.
1. The Management Team
Classic tale right here. Company executives with a previous track record of success have an influence on the long- term value of pot stocks. On the flip side, weak management is an indicator of poor long- term performance in spite of current positive financials.
Even with the massive growth potential of the industry, some pot stocks will do well while others will flop. The management team which comprises of the CEOs, finance managers, and other top executives making pivotal decisions for the company are the best indicator of the long-term performance of the cannabis stock.
If you haven't heard the term "Bet on the Jockey, Not the Horse," now you have, and it should be applied to your stacks of cash when thinking about investing in the cannabis market.
2. The Growth Potential
As a cannabis investor who is looking for long term gains, the growth potential of the company should be a top priority. One should examine the business strategy and the market share that the company is likely to command. How large is the niche market and who are the competitors? If the company grew to its maximum capacity what would the earnings look like, all other factors taken into consideration.
Breaking down growth potential is studying a series of "what ifs," or "if this, than that," scenarios. It can be exhausting, but losing your life savings could make you feel a whole different set of things. So, it's our recommendation that you truly understand all aspects of the market the company you have your eyes on is into, whether it be manufacturing, cultivation, retail, or processing, before you ever consider giving them some of your hard earned money.
3. The Financial Status
There are a couple of things that you can scrutinize to give you an indication of how well a stock will fair in the long run:
Quarterly projections, seasonal upticks and downticks, and overall market volume
Quickly, quarterlies are just that, reports that come out Q1-Q4 in relation to a given stocks performance in the market, containing balance sheets, cash flow discrepancies, and a breakdown of dividends paid to investors.
Seasonal upticks and downticks should be somewhat self explanatory, but on a high-level they can be used to determine the likelihood of a stock moving up or down simply because of the spending habits of consumers in that particular market at that particular time of year; Study them.
Market Volume is a huge daily indicator of a stocks likelihood to move up or down. When stocks that typically trade low (below a million shares traded daily) all of a sudden trades high volume (more than 100 million shares) it's usually because some information has been set in motion and wall street wants to get the most out of their money. You've seen this outside of the marijuana sector, especially during the recent pandemic where market sectors have been extremely volatile, often trading news on low volume stocks, bringing their trading volume near 500million to 1 billion shares traded daily, causing spikes and valleys close to 30% each way.
4. Consider Cashflows
What are the debts owed and are they likely to get sorted in the near future? Who are the creditors and are they likely to pay up? Are the expenses justifiable? What are the cost structures? What advantages does the company have over its competition? Will the company achieve profitability in the near future?
All viable questions when you're considering putting any sum of money into someone else's operation with the hopes of profiting. Cannabis is one of the hottest markets on the planet right now. As legislators wake up to the demands of the average joe, they continue working slowly as to maintain the grasp the federal government has around this lucrative plant, as not to lose the potential revenue of the market to the everyday investor. Don't let them beat you.
5. The Marijuana Stock Valuation
Evaluations are tough. We see the framework of how, or what goes into an evaluation when we turn on shows like Shark Tank, or The Profit, and we see how savvy investors breakdown a particular company from top to bottom, nuts and bolts, everything included, when coming up with a number to represent the total value of a company. This number, will help determine what each and every percent of a company is worth, making it easy to divvy up slices of the pie to other potential investors, or in a move to raise capital on the open market, by offering sale of stock.
If you're finding this page, you don't need me to tell you Cannabis is a hot commodity right now, but if you were looking for some motivation to get involved, I hope we provided enough direction for you to consider finding and using resources in your due diligence process.