With the “Green Rush” ramping up toward full steam, smart investors are looking to get in early before the cannabis space is overcrowded. That means finding the best cannabis stock options asap.
But in an industry this new, it can be difficult to know what makes for a successful investment. So what should you look for? Here are a few tips:
Look for a license
According to Invictus MD (OTC: IVITF) (TSXV: IMH) Executive Chairman Dan Kriznic, “Look for companies that are or own licensed producers. Only 44 companies in Canada can currently make that claim. These organizations have a facility that meets Health Canada’s strict security and quality demands.”
These licensed companies are more likely to avoid pitfalls as the industry grows and develops, meaning your investment is better protected.
“Additionally,” said Mr. Kriznic, “Existing licensed producers have a first-mover advantage because they are presently deploying capital raised into capturing market share, and some of those players will be able to create significant economies of scale.”
Go with established companies
While there are a slew of new companies hitting the field that are rich with the potential for growth, the fact is that it is still a somewhat volatile market and smaller companies are less likely to fare as well as the juggernauts with expansive suites of cannabusinesses. By investing in large cannabis companies, you’re better positioned to ride out the ebbs and flows.
“Also ensure that the organization's management team has experience in building shareholder value,” advises Mr. Kriznic.
As in any new industry, it can be difficult to see which business types will succeed while others fall behind. Build a diverse collection of investments that both touch the plant (growers) and don’t (ancillary companies), and protect your portfolio.
It’s easy to limit your investments to the U.S. and Canada, but keep in mind that new opportunities are emerging all around the world. Australia, Germany, Israel, and Spain, for example, are all exciting markets that are poised to grow fast.
Core vs. Peripheral
In building a diverse portfolio, it’s a good idea to allocate your holdings strategically. Invest heavily in larger, more stable cannabis stocks while allocating less for smaller, more speculative ventures. This positions you to ride things out during times of volatility while capitalizing on potentially lucrative but riskier long-shots.
Don’t worry about valuation
Valuations are tricky when it comes to an industry in its early stages, and that’s especially true for cannabis. Expectations always seem to be either subdued or skyrocketing when it comes to cannabis company valuations, meaning it can be difficult to judge their accuracy.
“Valuations may be ‘stretched’,” says Mr. Kriznic, “Resulting in the larger players being overvalued. Therefore, look for companies with valuations that have room to grow.”
Bottom line – don’t let valuations sway you. Make smart, diverse investments using the core vs. peripheral tactic mentioned above, and sit back to watch the cannabis space grow over time.
Remember that in a new industry like cannabis, there are bound to be ups and downs – especially considering some of the cultural and legal challenges it faces. Keep your eyes on the prize and maintain a long-term vision for success, because the opportunities afforded by cannabis are just getting started.
Disclaimer: Except for the historical information presented herein, matters discussed in this article contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Civilized is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. For making specific investment decisions, readers should seek their own advice and that of their own professional advisers. Civilized may be compensated for its services in the form of cash-based and/or equity- based compensation in the companies it writes about, or a combination of the two.