Canadian marijuana stocks are all the rage these days, as investors want to get in early on an emerging industry that will be around for years to come. There’s a ridiculous amount of growth from current levels, especially considering nationwide legalization is on the horizon. Marijuana used to be a taboo drug, but it will eventually lose this taboo once the drug is legal and you can purchase it at your local convenience store like you would a package of cigarettes.
As we know, the cigarette industry is very profitable, but morally conscious investors avoid it because they don’t support the negative impacts of the product. While there will be investors opposed to the industry, I believe more investors will be open to investing in marijuana because of the numerous medicinal applications of the drug.
The Trump Administration has made it clear that they’ll most likely put restrictions on U.S.-based marijuana producers. These kinds of restrictions could limit American marijuana companies’ ability to expand, and I believe this will open a window of opportunity for Canada’s marijuana producers. Even an American investor should consider Canadian marijuana stocks because there’s a lot of potential without the uncertainty of President Trump.
Going forward, I think there’s still a huge amount of growth left for marijuana stocks, and a few key players will reap the rewards of legalization across Canada. These players will be high-capacity producers with the lowest input costs. Operational efficiency and a top-notch management team are a must if a producer is going to become an industry leader.
But is there more to it than just production?
There’s also the R&D segment to think about, which may be a source of growth as well. Sure, many pundits believe marijuana producers will be simple commodity businesses, but I believe there’s a pharmaceutical aspect as well. Different strains of marijuana are good for treating different ailments, and there’s certainly an opportunity to patent newly discovered strains. This goes to show that marijuana producers can be more than just a commodity play.
Canopy Growth Corp. (TSX:WEED) has expressed interest in developing exclusive marijuana strains, but it’s very hard to tell whether or not this could be a game changer. It’s possible that the biggest winners in the marijuana space will be the lowest-cost producers, but it’s too early to tell.
All marijuana stocks are going to face volatility for the next few years, and you could easily double your money or lose your shirt overnight. It’s a risky play, especially considering there are a ton of short-term thinkers jumping in and out of the stocks on a daily basis.
If you want to invest in marijuana for the long term, then make sure you buy in small increments on any signs of weakness. Don’t buy it all at once and hope that the stock goes up. It’s almost certain that you’ll see a better price in a few months with all this volatility.
Stay smart. Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette has no position in any stocks mentioned.