Pot stocks were all the rage in 2018. Some stocks increased 10 times in value!
Recent history hasn’t been so exciting. In 2019, valuations collapsed. The COVID-19 pandemic of 2020 only added to the pain.
If you’re a savvy investor, you know that this is exactly the time to pay attention. Like Warren Buffett advises, you want to buy when others are fearful. Right now, pot investors are the definition of fearful.
Running the numbers, there’s one marijuana producer in particular that could rise 300% or more.
This is your chance
In April of 2019, as many pot stocks hit new highs, I’d warned investors about the number one risk the industry faced.
“At the end of the day, cannabis companies are simply growing crops. The planting and harvesting cycle isn’t too different from corn, tomatoes, or soybean,” I explained.
Sure, marijuana has this exciting characteristic about it, but it’s still just a plant. Do you know any billionaire soybean farmers? I didn’t think so. Pot was cool in 2019, but I predicted that economics would eventually catch up.
“Today, it’s not very profitable to grow staples like tomatoes, beans, rice, or cabbage. In another decade, there’s a chance that growing cannabis isn’t wildly profitable either. That reality could crush nearly every cannabis stock. Commoditization could be a lot closer than you think,” I concluded.
Within a few months of that post, the pot market went into free fall. The industry lost billions in value seemingly overnight. Investors realized they were betting on plants, not some novel innovation.
Importantly, this isn’t the end of the story.
I love this pot stock
How do you sell commoditized plants without seeing your profits disappear? It’s simple: you turn those commodities into something special.
Consider Coca-Cola. The company basically sells sugar and water. The underlying cost of a bottle of Coke is a few pennies, yet the company can sell the combination for $1 or more. The secret is branding. People don’t want sugar and water—they want a Coke.
From the start, HEXO differentiated itself from the industry. Competitors were looking to ramp production as fast as possible. At the time, that’s what the market loved, but HEXO knew that strategy wouldn’t succeed long term due to the effects of commoditization.
Instead, HEXO spent millions of dollars to brand its pot. It didn’t start from scratch. Executives reached out to existing brands to quickly launch products that consumers would already trust. For example, it partnered with Molson Coors to co-produce THC beverages.
This story is just getting started. HEXO wants to replicate its Molson partnership with established brands in other categories like cosmetics, edibles, sleep aids, and more. If you like this strategy, know that this pot stock is years ahead of the competition.
Right now, HEXO is valued at $500 million. In 2018, the business was worth more than $2 billion. When sentiment shifts in the pot market, I expect this stock to lead the surge.
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The Motley Fool recommends HEXO. and HEXO. Fool contributor Ryan Vanzo has no position in any stocks mentioned.