Should You Be Investing In Cannabis Stock?
Wednesday, 09 September 2020

 "To buy or not to buy" is the question many investors are asking themselves when it comes to cannabis stocks. When it first became legal in many US states for medical use, and then gained even more traction for recreational use, investors started being optimistic about it as a new sector that could generate billions in returns. There is a chance it could still do that, but there are many reasons to lower expectations and use a lot of caution when considering buying cannabis stocks.

 Bad News: Cash Flow Shortage In The Industry

Right now a lot of cannabis companies are experiencing a cash flow shortage. While some may point to the COVID-19 pandemic as the culprit for this, the problem was already happening in late 2019 and early 2020 before the pandemic even made its way around the world. The reasons for this in the North American markets were issues in Canada's supply chain, states in the US implementing burdensome taxes, and even black market sales affecting the bottom lines of prominent companies. One report which came out before states began implementing lockdown orders showed a number of well-known cannabis wholesale companies in a major cash flow shortage.

The Unknown: Many New Executives In The Industry

Perhaps not surprisingly, the cannabis industry is having to bring in people to make changes needed to try and stabilize the finances of cannabis companies. And with the pandemic in full force now, most of them are having to make cuts in their budgets and temporarily or permanently close down some operations. Even if these executives can help secure financing for some of these companies, the question is whether or not they can turn them into major innovation places again.

The Good News: Ontario, CA Is Starting To See Production Again

The Canadian province of Ontario is where a huge share of the North American marijuana production and distribution takes place. Initially, the COVID-19 lockdowns imposed on the province caused a halt on sales in the shops and the overall distribution. But since reopening, demand has kept sales going with over $200 million recorded in the month of June. Compound that with other provinces and US states that have allowed cannabis shops to stay open, consumers have been able to buy cannabis products to get through the pandemic.

Some Optimism: Companies To Watch

There have been some companies who've been able to weather the storm and actually keep their profits moving. One company that's considered cannabis stock but is an REIT is Industrial Innovative Properties (NYSE:IIP). They acquire real estate for cannabis production and distribution, and their stock has by far performed the best with the highest earnings per share. Outside the US, there have been other markets emerging for marijuana including the nation of Israel. One Australian investor, Adam Blumenthal of EverBlu Capital who's listed in Business News has been working on a venture that's spanning cannabis sales to several countries including Israel. The company he serves on the board of is Creso Pharma, a company publicly traded on the Australian Stock Exchange that just secured $625,000 in funding to distribute its products to Israeli medical marijuana supplier Univo. Witb additional hubs in Canada and Switzerland, Cresco Pharma is a company with the potential for more growth that you may want to watch.

At the end of the day, marijuana stocks in general are facing problems right now, and more of them are traded on lesser known exchanges than they are on major exchanges. This makes them a lot riskier for investors and may mean the chance for boosting your portfolio with them will have to wait. But there are a few companies you might do well to invest in so long as their cash flow holds strong.
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