Can you smell the opportunity? (Okay, okay.)
Canada legalized recreational pot in 2018, and a growing number of US states have opened the doors to legal marijuana. By 2030 the cannabis market could climb as high as US$200 billion (pun intended). The pot companies that build the infrastructure, value, and brands today will deliver big for investors tomorrow.
Here are ten terms every cannabis investor must know.
Buy Low, Sell High
Cliché, but every time an investor made money, this was the way. Whether you’re a day trader or a long-term finger-crosser, investing in Silicon Valley or the Emerald Triangle, it’s all about the discipline to buy low, sell high.
Why is there a big bronze bull on Wall Street? Because that’s what everyone wants the market to do: charge ahead. In a bull market, growth is normal. Chances are, if the whole economy is doing well, pot stocks will follow. But bulls don’t run forever.
The opposite of a bull market. Bears hibernate. In a bear market, investors are nervous all around, and they find it safer to put assets into bonds and real estate, waiting for an upswing. The good news? Buy low.
When there’s a clear opportunity for growth, FOMO (fear of missing out) entices all kinds of money. This leads to bubbles. Many companies profit by creating expectations that are ahead of what they can deliver. Remember, bubbles pop.
Warren Buffett protects himself from bubbles by seeking value. One of his favorites is Coca-Cola (NYSE:KO), a global household brand with loyal customers, outstanding supply chains and a consistent profit record. Who will be the Coke of cannabis?
Economy of Scale
The marijuana industry doesn’t grow because more and more companies are popping up, but because established companies are scaling up. Find the pot companies with the resources and plans for economy of scale.
Mergers and Acquisitions (M&A)
More businesses are competing for a smaller share of the brownie (last one, we promise). Soon the pieces will be so tiny, the incentive for efficiency will be unstoppable. Which companies are ready for mergers and acquisitions?
One step back from M&A, equity partnerships occur when one business buys a piece of another. The beer company Constellation Brands (NYSE:STZ) bought into Canopy Growth (TSE:WEED), partly because alcohol and pot will share retail space.
Initial Public Offerings (IPOs)
This is where investors can get in on the ground floor. Sometimes an Initial Public Offering (IPO) can be overhyped. But then again, Facebook’s (NASDAQ:FB) 2012 IPO was the definition of stock hysteria. Its opening share price? $38.
What’s your favorite coffee bean farm? Most likely, you don’t have one. What matters is the end-product. When the cannabis market matures, brand will be everything. Watch the companies that focus on packaging, distribution and brand.