A few days ago, I received a surprise email.
One of your fellow readers wanted to know…
Well, you best read the message for yourself. Here it is…
“Interested in exploring cannabis stocks. Do you have market research or recommendations? Thanks!”
When I read the note, I couldn’t help but feel like I’d let this reader down.
Could it really be that I’ve yet to express my opinion about this market for my Cashflow For Retirement readers?
Indeed, I realized, that’s the case.
So, today, long overdue as it may be, I’m going to share my thoughts on marijuana stocks.
Before I do, let me take you back a few years, to the time when this industry began to take off, and tell you about another mistake I made.
How I Missed The Marijuana Train
At the time when states across the United States were legalizing marijuana left and right, and it was the right moment to enter the market, another event was unfolding—the cryptocurrency mania. I was utterly absorbed in it.
I wasn’t just buying and holding cryptos. I was actively trading them, as well. I was making profits like never before in my life, and I didn’t care about anything else… including the on-the-verge-of-booming cannabis market.
Looking back, I see that it was a mistake. It was evident that the marijuana industry was going to explode.
Moreover, it had a lot more long-term potential than cryptocurrencies. These were turning into a massive bubble (that’s what made trading them so much fun—it was easy money).
So, when I finally got around to noticing cannabis stocks, that train has all but left the station… and I wasn’t going to chase it.
Because that would mean breaking one of my fundamental investing principles:
Never chase stocks.
And, so, I stayed out of the market.
Though I kept a close eye on values, hoping for a buy-the-dip opportunity.
But the more I analyzed this industry, the more I began to see that it was all a hype train.
False Claims And Poor Fundamentals
What I began noticing is that marijuana, and CBD in particular, were suddenly being promoted as new cure-all medicines.
It was the new hot health product, after spirulina, acai berries, and green tea.
I’m not saying CBD doesn’t have medicinal properties. It can help with epilepsy, reduce Parkinson’s trembles, work as a mild painkiller, and can treat anxiety.
However, there’s an astoundingly large number of false claims floating around, distorting the overall picture.
You can find statements that CBD cures cancer, Alzheimer’s, and autism… even though none of those claims have been medically proven.
Furthermore, once I started analyzing cannabis companies’ balance sheets, I realized that many of them are running unsustainable operations.
Huge levels of debt, big losses, and inflated stock prices all led me to believe I’d actually done myself a favor staying out of this market.
I moved from feeling as though I’d missed out to actively recommending that investors should sell these stocks.
Canopy Growth (CGC) is one company I’ve been advising against since mid-January. The price stayed flat until May, when it began a rapid decline. Today it is down by more than 50%.
You can observe this trend across the industry. Aurora Cannabis (ACB), GW Pharmaceuticals (GWPH), Cronos Group (CRON), Tilray (TLRY), and Curaleaf (CURLF) are all on the same downward trajectory.
Right now, this industry is in a bear market. The bubble that formed in 2017 and 2018 must fully deflate before investing in it makes sense again.
Until that happens, my recommendation is: Stay away.