Cannabis stocks blowing up?

[Tegus]

Canadians - this sector is flying right now. Like most people on this board I'm quite conservative and normally stick to index funds but could not resist a little experimenting when i saw the insane returns. Invested a grand about two weeks ago in one of the major producers and am up 50 percent. Yes it's probably a bubble but it's got a few weeks left at least i think - depends on legalization. Curious if anyone else is invested? i have a couple of relatives who have made some very serious coin but it seems like it's just catching on with most of the investing crowd.

Check out Aphria, Canopy, Organigram, Aurora

[ooeei]

Just remember, easy come, easy go.

[Vagabond76]

The shit is blowing up!!!!  Sounds like time to short anything associated with OP's claim.

[Nad]

I had OGI for a very short while. Did ~10% and GTFO. Could have done another 20% if I'd held for a few more days

It was fun but I'd probably not do it again...

[steveo]

I don't buy individual stocks but I like cannabis. I wish it was legal in Australia.

[Heckler]

Drove past a "protest" today in Vancouver.  Five guys under a popup tent with a dozen plants on the table. Hand painted sign "stop the arrests" and all of them looking like they need a bag of Doritos.  lol, I wont be buying thier stocks.

[Tegus]

you mean those guys owned a cannabis production company? Yes, I would steer clear :)

I thought this would be a good place to discuss the industry's prospects, but perhaps not. I'm gonna keep an open mind and ride this train for a bit, it's indeed been fun so far.

[ooeei]

you mean those guys owned a cannabis production company? Yes, I would steer clear :)

I thought this would be a good place to discuss the industry's prospects, but perhaps not. I'm gonna keep an open mind and ride this train for a bit, it's indeed been fun so far.

My main hesitation is if/when it becomes federally legal, large ag companies will jump on it and drive prices way down.  It's not a hard plant to grow, and could/should cost about the same as tomatoes or tobacco if growing costs are the only factor. 

The only reason it's still expensive is because you pay a premium to compensate companies for the risk they're taking, and large established ag companies don't think the risk is worth it.  Right now in this legal grey area the little companies are in a very good position. Basically if the laws change in either direction, they're going to have a much tougher time.

[Metric Mouse]

you mean those guys owned a cannabis production company? Yes, I would steer clear :)

I thought this would be a good place to discuss the industry's prospects, but perhaps not. I'm gonna keep an open mind and ride this train for a bit, it's indeed been fun so far.

My main hesitation is if/when it becomes federally legal, large ag companies will jump on it and drive prices way down.  It's not a hard plant to grow, and could/should cost about the same as tomatoes or tobacco if growing costs are the only factor. 

The only reason it's still expensive is because you pay a premium to compensate companies for the risk they're taking, and large established ag companies don't think the risk is worth it.  Right now in this legal grey area the little companies are in a very good position. Basically if the laws change in either direction, they're going to have a much tougher time.

Is there still the issue of banking the money created by these companies? Since cannabis was still a drug according to the government, banks often wouldn't take the money these companies generated. Has this been ironed out?

[Bumperpuff]

you mean those guys owned a cannabis production company? Yes, I would steer clear :)

I thought this would be a good place to discuss the industry's prospects, but perhaps not. I'm gonna keep an open mind and ride this train for a bit, it's indeed been fun so far.

My main hesitation is if/when it becomes federally legal, large ag companies will jump on it and drive prices way down.  It's not a hard plant to grow, and could/should cost about the same as tomatoes or tobacco if growing costs are the only factor. 

The only reason it's still expensive is because you pay a premium to compensate companies for the risk they're taking, and large established ag companies don't think the risk is worth it.  Right now in this legal grey area the little companies are in a very good position. Basically if the laws change in either direction, they're going to have a much tougher time.

I'm betting on legalization in the next 5-20 years (with about 10% of my small stache).  My approach is to buy stocks in tobacco and agricultural service (seeds, fertilizers, etc) companies that will move into the market if/when legalization happens.  The up side is lower than investing in the cannabis companies directly, but so is the down side.

[Mattzlaff]

The only individual stock I own.

I've bought 1000$ in shares in a Cannabis company's stock here in Canada just to play around. I figure legalization can't(in my opinion) possibly hurt this type of stock, more people buying from legit companies than off the street corner. But then again it is the stock market.

Edited to change "single" to individual

[Tegus]

It looks like they are on another run. I now have an 80 percent return on my OGI stock. a relative of mine just made tens of thousands in a few days. obviously i wish i'd bought more now, but so much of it is speculation and hype- there seem to be no real events behind the sudden climb. a couple of the stocks that are showing thirty percent gains in a day seem like they are getting pumped and dumped. interesting comments re: agriculture companies bringing the prices down once it's legalized. i will likely sell most of my shares before then.

[Vagabond76]

It looks like they are on another run. I now have an 80 percent return on my OGI stock. a relative of mine just made tens of thousands in a few days. obviously i wish i'd bought more now, but so much of it is speculation and hype- there seem to be no real events behind the sudden climb. a couple of the stocks that are showing thirty percent gains in a day seem like they are getting pumped and dumped. interesting comments re: agriculture companies bringing the prices down once it's legalized. i will likely sell most of my shares before then.

If I happened to find myself in this situation, I would sell between half and all of the position.  Pump and dump is right.  You got lucky, and now is the time to get some out and pay the tax.

[ooeei]

It looks like they are on another run. I now have an 80 percent return on my OGI stock. a relative of mine just made tens of thousands in a few days. obviously i wish i'd bought more now, but so much of it is speculation and hype- there seem to be no real events behind the sudden climb. a couple of the stocks that are showing thirty percent gains in a day seem like they are getting pumped and dumped. interesting comments re: agriculture companies bringing the prices down once it's legalized. i will likely sell most of my shares before then.

Just be careful.  I came upon this from a link in another thread yesterday, interesting (and kind of sad) read.  This stock was IMO quite a bit less risky than a typical cannabis stock.

http://www.joshuakennon.com/gt-advanced-technologies-bankruptcy/

[Tegus]

Vagabond - you may be right, and i'm not advocating for anyone to buy in at this point, but the growth in this industry is unprecedented - i'm curious to see how it rides out. there will no doubt be a fairly substantial pullback soon but i think the long term trend is upwards. i may sell some stocks but will probably go long. i have a steady hand since individual stocks are just a tiny portion of my portfolio (the rest are in boring index funds). It's in a TFSA - which is tax free.

O - that is indeed a devastating story, but there are plenty like that out there unfortunately. Those who put all their eggs in one basket like that have either not bothered with Investing 101 or are just plain greedy.

here's an illustrative article from the Globe and Mail:

http://www.theglobeandmail.com/globe-investor/inside-the-market/pot-stocks-undergo-buying-spree-as-investors-pin-hopes-on-legalization/article32279939/

[ooeei]

Vagabond - you may be right, and i'm not advocating for anyone to buy in at this point, but the growth in this industry is unprecedented - i'm curious to see how it rides out. there will no doubt be a fairly substantial pullback soon but i think the long term trend is upwards. i may sell some stocks but will probably go long. i have a steady hand since individual stocks are just a tiny portion of my portfolio (the rest are in boring index funds). It's in a TFSA - which is tax free.

O - that is indeed a devastating story, but there are plenty like that out there unfortunately. Those who put all their eggs in one basket like that have either not bothered with Investing 101 or are just plain greedy.

here's an illustrative article from the Globe and Mail:

http://www.theglobeandmail.com/globe-investor/inside-the-market/pot-stocks-undergo-buying-spree-as-investors-pin-hopes-on-legalization/article32279939/

Oh I know people won't go all in here, at least I hope not.  I was more responding to the "obviously i wish i'd bought more now" part of your post.

I agree with you that the future for cannabis looks bright.  With that being said, I'm not convinced most of these companies right now are adequately prepared to compete in a legal environment.  Nor am I convinced it will be all that profitable even if they can compete. 

Right now they're essentially growing tomatoes and selling them for $15/gram.  There are 450 grams in a pound, and tomatoes generally sell for about $3/pound around here.  Let's assume for argument's sake super high end heirloom tomatoes grown indoors at $15/pound.  They're growing selling their product for $6750/pound, let's round down to $4000 since some people buy in bulk.  They should be making so much damn money it's ridiculous.  That's a very conservative 26000% inflated price over someone growing a slightly different plant (and still making a profit).  Their profit margin is HUGE.

Granted, they have a few extra regulations and expenses, but they should be making SO MUCH MONEY it's ridiculous.  How is their stock not paying out dividends of 10% a day with this sort of profit?  They should be making way more than they are (if they're an efficiently run business that is).  I personally think they're probably wasteful and inefficient, and will be in a very tough position once they have companies who know what they're doing competing with them. 

A few of them may survive if they change quickly, but I'm not banking on it.  It reminds me of the fracking boom in America the last few years.  There were little companies popping up everywhere making money hand over fist and completely ignoring their costs because hey, the price is so high we can afford it!  Then Saudi Arabia decided gas prices should be around $40/barrel (where they still make a nice profit).  A ton of those little operations needed $80-100/barrel to break even, and are now bankrupt.  If you timed it right, you made a lot of money on those companies.  I doubt many of them made a good "long" position.  That was with a price drop from $140 to $30.  Cannabis prices have much more room to fall than that.  Any of a number of large ag companies could be their "Saudi Arabia" and drop the price to where they can't compete.

[frugalnacho]

Right now they're essentially growing tomatoes and selling them for $15/gram.  There are 450 grams in a pound, and tomatoes generally sell for about $3/pound around here.  Let's assume for argument's sake super high end heirloom tomatoes grown indoors at $15/pound.  They're growing selling their product for $6750/pound, let's round down to $4000 since some people buy in bulk.  They should be making so much damn money it's ridiculous.  That's a very conservative 26000% inflated price over someone growing a slightly different plant (and still making a profit).  Their profit margin is HUGE.

While tomatoes and cannabis are very similar to grow, the yield of usable product is not even remotely the same.  From an area where I could expect to yield a pound of high quality cannabis, the equivalent amount of space with tomato plants would probably yield me 20-30 pounds of tomatoes. So a direct weight to weight comparison is not valid.

That said there still is a huge amount of waste and inefficiency in the growing process, along with greed.  If you can produce cannabis for $30/oz, but the market will bear a price of $200/oz, what are you going to sell it for?  I've seen this a lot in the medical marijuana industry in michigan.  The black market price was about $200/oz, and when the medical marijuana laws got passed in 2008 I saw the quality of product increase (much more high quality indoor product available as opposed to low quality outdoor mexican grown product), and the availability of product increase (everyone in michigan got their medical card and started growing), but the price actually increased (always justified as being higher quality) despite taking most of the illegality/risk out of the equation. 

There is also a huge difference in production cost between outdoors vs indoor.  Indoors allows much better control of the environment, and in the end a much higher quality product.  But that comes at a steep cost as space, and energy are at a premium.  A pound of indoor marijuana will probably cost around $150 worth of electricity just to run the lights.  Very few people grow vegetables indoors using non-solar light because it simply isn't economical compared with using the sun. 

EDIT:  I do think legalization and commercialization can and will drive the price much much lower in the future than what it is right now, but it will never (and for reasons I stated, never can even in theory) be priced on par with tomatoes on a weight basis. 

[ooeei]

Right now they're essentially growing tomatoes and selling them for $15/gram.  There are 450 grams in a pound, and tomatoes generally sell for about $3/pound around here.  Let's assume for argument's sake super high end heirloom tomatoes grown indoors at $15/pound.  They're growing selling their product for $6750/pound, let's round down to $4000 since some people buy in bulk.  They should be making so much damn money it's ridiculous.  That's a very conservative 26000% inflated price over someone growing a slightly different plant (and still making a profit).  Their profit margin is HUGE.

While tomatoes and cannabis are very similar to grow, the yield of usable product is not even remotely the same.  From an area where I could expect to yield a pound of high quality cannabis, the equivalent amount of space with tomato plants would probably yield me 20-30 pounds of tomatoes. So a direct weight to weight comparison is not valid.

That said there still is a huge amount of waste and inefficiency in the growing process, along with greed.  If you can produce cannabis for $30/oz, but the market will bear a price of $200/oz, what are you going to sell it for?  I've seen this a lot in the medical marijuana industry in michigan.  The black market price was about $200/oz, and when the medical marijuana laws got passed in 2008 I saw the quality of product increase (much more high quality indoor product available as opposed to low quality outdoor mexican grown product), and the availability of product increase (everyone in michigan got their medical card and started growing), but the price actually increased (always justified as being higher quality) despite taking most of the illegality/risk out of the equation. 

There is also a huge difference in production cost between outdoors vs indoor.  Indoors allows much better control of the environment, and in the end a much higher quality product.  But that comes at a steep cost as space, and energy are at a premium.  A pound of indoor marijuana will probably cost around $150 worth of electricity just to run the lights.  Very few people grow vegetables indoors using non-solar light because it simply isn't economical compared with using the sun. 

EDIT:  I do think legalization and commercialization can and will drive the price much much lower in the future than what it is right now, but it will never (and for reasons I stated, never can even in theory) be priced on par with tomatoes on a weight basis.

You're right about the yield, hadn't thought that part through.  Flowers don't tend to be very heavy :P.  I know they won't ever get as low as tomatoes, and if they did people would just buy higher quality until the price was up.  A pound of weed would last well over a year for any but the heaviest of smokers, so paying $200 instead of $100 wouldn't be a big deal, as the price per "serving" is still very low. 

Assuming a serving size of .5 grams (pretty big serving), you're looking at 900 servings in a pound.  For an efficient person with a vaporizer, more like 4000 servings.  At that rate even $500/lb isn't too terrible ($0.13-$0.55 per serving depending on your usage).  I'd double my price to get higher quality at that rate, still cheaper than the cheapest beers! 

Personally, I see "regular grade" cannabis getting as low as similar tobacco in price if legalized (although they'll probably add all sorts of taxes and regulations that will keep the price artificially high).  If grown in a good area, outdoor weed can still be very high quality, and greenhouses could combat some of the risks of outdoors (pollination, pests, hail/rain).  Indoor LED Hydroponic grown product will always be pricey, but I'm not so sure about the $15-20/g ($5000-10000/lb) it currently sells for.

[frugalnacho]

Right now they're essentially growing tomatoes and selling them for $15/gram.  There are 450 grams in a pound, and tomatoes generally sell for about $3/pound around here.  Let's assume for argument's sake super high end heirloom tomatoes grown indoors at $15/pound.  They're growing selling their product for $6750/pound, let's round down to $4000 since some people buy in bulk.  They should be making so much damn money it's ridiculous.  That's a very conservative 26000% inflated price over someone growing a slightly different plant (and still making a profit).  Their profit margin is HUGE.

While tomatoes and cannabis are very similar to grow, the yield of usable product is not even remotely the same.  From an area where I could expect to yield a pound of high quality cannabis, the equivalent amount of space with tomato plants would probably yield me 20-30 pounds of tomatoes. So a direct weight to weight comparison is not valid.

That said there still is a huge amount of waste and inefficiency in the growing process, along with greed.  If you can produce cannabis for $30/oz, but the market will bear a price of $200/oz, what are you going to sell it for?  I've seen this a lot in the medical marijuana industry in michigan.  The black market price was about $200/oz, and when the medical marijuana laws got passed in 2008 I saw the quality of product increase (much more high quality indoor product available as opposed to low quality outdoor mexican grown product), and the availability of product increase (everyone in michigan got their medical card and started growing), but the price actually increased (always justified as being higher quality) despite taking most of the illegality/risk out of the equation. 

There is also a huge difference in production cost between outdoors vs indoor.  Indoors allows much better control of the environment, and in the end a much higher quality product.  But that comes at a steep cost as space, and energy are at a premium.  A pound of indoor marijuana will probably cost around $150 worth of electricity just to run the lights.  Very few people grow vegetables indoors using non-solar light because it simply isn't economical compared with using the sun. 

EDIT:  I do think legalization and commercialization can and will drive the price much much lower in the future than what it is right now, but it will never (and for reasons I stated, never can even in theory) be priced on par with tomatoes on a weight basis.

You're right about the yield, hadn't thought that part through.  Flowers don't tend to be very heavy :P.  I know they won't ever get as low as tomatoes, and if they did people would just buy higher quality until the price was up.  A pound of weed would last well over a year for any but the heaviest of smokers, so paying $200 instead of $100 wouldn't be a big deal, as the price per "serving" is still very low. 

Assuming a serving size of .5 grams (pretty big serving), you're looking at 900 servings in a pound.  For an efficient person with a vaporizer, more like 4000 servings.  At that rate even $500/lb isn't too terrible ($0.13-$0.55 per serving depending on your usage).  I'd double my price to get higher quality at that rate, still cheaper than the cheapest beers! 

Personally, I see "regular grade" cannabis getting as low as similar tobacco in price if legalized (although they'll probably add all sorts of taxes and regulations that will keep the price artificially high).  If grown in a good area, outdoor weed can still be very high quality, and greenhouses could combat some of the risks of outdoors (pollination, pests, hail/rain).  Indoor LED Hydroponic grown product will always be pricey, but I'm not so sure about the $15-20/g ($5000-10000/lb) it currently sells for.

It can (and is) for sure be grown much cheaper than $20/g, and I think those prices are fueled by greed and the fact that the market will still bear it.  I'm not so much of a snob that I would turn my nose up at outdoor grown weed so long as it was actually tended to and taken care of and was still reasonable quality, especially if you plan to be a daily smoker and consume a lot.  There is definitely something to be said about some real nice sinsemilla fire though, but at those prices I don't know how anyone can justify smoking multiple grams per day of the stuff.  Unless you are already FIRE and have a ridiculous annual drug budget.

[TheDeclutterer]

Good points by all. This segment will slowly plod to legalization, problem being current share value reflects future potential, not a good thing. By any metric most are way overvalued and should not be touched. CGC at 11 bucks, APH at 6, oh dear.

I'm in for the 3 to 5 yr window on both, but the kill has been made for the time being, going to take some time to for them to grow into current valuation while the speculation cools off.

Any exposure should be relative to net worth and deemed as play money. That said there is some coin to be made. I used TFSA room of 46500 and in 6 months it broke 200000 a few weeks ago, I stayed long and now in the 145000 range. Hindsight is always 20/20, coulda shoulda woulda. Will continue to stay long on them.

Need thick skin for pot stocks in Canada at least, the volume and value swings are hard to stomach for some, make sure a complete loss does not change the long term plan and go have some fun with them.

[Metric Mouse]

Good points by all. This segment will slowly plod to legalization, problem being current share value reflects future potential, not a good thing. By any metric most are way overvalued and should not be touched. CGC at 11 bucks, APH at 6, oh dear.

I'm in for the 3 to 5 yr window on both, but the kill has been made for the time being, going to take some time to for them to grow into current valuation while the speculation cools off.

Any exposure should be relative to net worth and deemed as play money. That said there is some coin to be made. I used TFSA room of 46500 and in 6 months it broke 200000 a few weeks ago, I stayed long and now in the 145000 range. Hindsight is always 20/20, coulda shoulda woulda. Will continue to stay long on them.

Need thick skin for pot stocks in Canada at least, the volume and value swings are hard to stomach for some, make sure a complete loss does not change the long term plan and go have some fun with them.

MY biggest fear for 'long term' is that existing companies with more capital and leverage will move in (in the future, as legalization hits) and crowd out the 'early adoptors'.  I just haven't found one of these companies that I feel comfortable betting on to come out on top.

[gp_]

I would imagine many of the cannabis stocks people are buying are still pink sheet / OTC?

I bought a few 2'ish years ago, but unfortunately they haven't faired too well... I was really long on PHOT (Growlife), but their company is (was) a mess... Lots of company restructuring, the multiple CEO's selling large chunks / shorting the company themselves.

[zazpowered]

I was considering investing in weed stocks but I think the volatility would cause too much stress. I feel like you could make a pretty good return but I've seen some big swings day to day and I don't want to have to monitor it.