(note: I am challenging myself to write every day for 30 days. What follows may not necessarily be interesting or even coherent. Parental discretion is advised.)
Legalization. It’s coming soon to a country near you if it hasn’t already reared it’s glorious green leafy neck in where ever you reside.
Writing from Canada, we’ve been enjoying legalized weed for over a year now with edibles just beginning to make their way into stores. Cash is being made.
33 States in America now allow for medicinal use of cannabis with 11 being fully legalized for recreational and medical purposes. Florida, Boston, New York, are all places where legalization is being taken seriously on the political level with the real possibility of full federal legalization to take place within the next few years.
Mexico is about to do it, the UK, Australia… It’s happening, folks.
So what does this mean to you? Other than no longer having to go into a weird looking house to buy a bag of “really good sh*t” from some guy you hardly know?
Yes, it means you can make money investing in companies that produce, sell or distribute cannabis. Imagine if your dealer had a ticker symbol and listed himself on the NASDAQ. You’d probably invest, right? Since when is not selling drugs a profitable business to get into?
I started investing in cannabis stocks towards the end of 2017. I saw my first purchase go from .49 cents a share to $3.33 in less than a month. That’s like… (counts on fingers) a LOT of crazy money.
Except, I chickened out early and cashed out at .63 cents.
Yes, yes, I know… Hold me. Thrill me. Kiss me. Kill me. Blah!
In the three years since, cannabis has been an erratic industry to invest in to say the least. Some weeks it’s a nice string of 3%, 6%, 10% gains on a daily basis, with some other weeks (months, even) of -10%, -6%, -3% before it goes back up again.
The cannabis sector is a bipolar roller coaster ride not for the faint of heart.
I’ve learned quite a bit in the three years I’ve been invested. Here are three valuable lessons I had to discover the hard way.
Expect the unexpected
This goes without saying. Do not expect consistent, stable share prices with cannabis stocks and if you should somehow think you’ve made a safe bet investing in a particular company — don’t be surprised if it drops double-digit percentages while other companies are soaring for no reason whatsoever. That’s just how it all works. So much hype and uncertainty and FOMO.
One of the hardest investments I made occurred in the summer of 2018. Aphria was a Canadian licensed producer that dropped down to 9$ a share. I had been watching APH for a while and decided it was time to throw my hat into the ring.
Two months later, it made it to $22 a share and I was ecstatic. I more than doubled my money. I cashed out SOME of Aphria, but not all of it.
Then, it started to drop. Drop, drop drop… like, for no reason. From 22$ down to the $15–$18 range where it stayed for months until…
December 5th. The day of reckoning where Citron (an investment firm) released what is known as a “short report” which basically means they put together all of the reasons why a company sucks and that investors shouldn’t touch them. The “short report” is like napalm to any stock. You’re almost always guaranteed a big drop the day the report releases, and it can happen anywhere to any company at anytime.
It didn’t matter if the allegations were exaggerated or false — short-reports are the economic kiss of death. And boy, did these guys slip Aphria the tongue.
I watched it go from $15 to…*gulps* $5 a share.
Didn’t expect that. Lost 75% of my investment’s value in one week.
Which brings me to the second thing I’ve learned from being invested…
Always keep money on the side for bargains
I went all-in with Aphria at the time and didn’t have cash left over to do what is known as “averaging down” — meaning that I could have purchased more Aphria shares at $5 to bring my average purchasing price down, and make it much more likely for me to turn a profit.
(pulls pockets inside out) But, alas! I had no coin for which to do such a thing and helplessly watched a company with sound fundamentals (the first and only Canadian producer to have made a profit since legalization) slip into a comatose, vegetative state from which it has yet to fully awaken from.
Which brings me to the third thing I’ve learned as a cannabis investor.
Don’t be afraid to sell at a loss if new opportunities present themselves
I’ve always loved Aphria as a company. They had a good thing growing, but they were a dog and it didn’t matter how fundamentally sound they were. Going from $15 a share to $5 was painful to watch. It was made all the more torturous having to then watch the share prices of less reputable companies climb to the heavens. Why was I holding onto Aphria with a kung-fu grip? Because I trusted them and felt that my money was in safe hands.
Wrong assumption.
Take a look at this company here, Tilray.
It made no sense to anyone why THIS company in 2018 went from $17 USD a share to over $200 a share in only a MONTH and a half. There wasn’t any fundamentals behind any of this. It was one of the most shocking and dramatic movements I’ve ever witnessed in the cannabis sector. Think about how you would feel if someone flashed you on the subway. That’s how disturbing this all felt. I think. Okay… poor analogy.
Investing $1,000 into Tilray at the time of their IPO would have netted you a cool 11,466$ and 12 cents if you sold it at the peak. A 1,026.95% return.
If you invested 2,000$, you would’ve had 20,897$ and 34 cents. God help me… this could have paid for a single-room apartment in a third-world country someplace. Imagine being mortgage-free with a $2,000 investment?!
You could’ve bought a small yacht and lived in International Waters for the rest of your days in peace and solitude. Well, except for the occasional pirates and sea monsters, but still. That would have been an option available.
Ahem… so while all this was going on, I held onto Aphria because they had “solid fundamentals”. Had I released the idea of loyalty and fundamentals, I could’ve sold Aphria at a loss and recouped my investment many times over if I jumped into Tilray with what capital I had left.
Similarly, I could have invested in other companies that rocketed during this time had I not over-extended myself. There wasn’t any any money set aside for rainy days when I needed it. Or at least, not a meaningful amount to make a difference with.
I learned that having cash set aside is taking a “position” in the market.
Never mind what this guy says.
30% of your portfolio should be cash that goes towards bargains and one-in-a-lifetime YOLO opportunities. If you’re risk-adverse like I am, this 30% worth of cash should be thought of as “house” money that you are not afraid of losing. Being conservative with investments while allowing for some risky plays is a good balance of two approaches. Aggression and patience.
So there we have it. Three of the things I’ve learned from investing in cannabis are:
Expect the unexpected
Always have money set aside for a rainy day
Don’t be afraid to sell your dogs if you spot an opportunity elsewhere.
Investing in cannabis can be a lucrative and rewarding experience. This is a new market that is still going through growing pains and is in the early stages of consolidation/mergers/etc.
Companies like Trulieve are making money hand-over-fist with tremendous potential being realized before our eyes in this new industry taking its baby steps into the future. If you are thinking about getting into investing, do your research and strap yourself in for a wild ride.
Now… anyone got some more of them weed stocks? *scratches neck*
