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Concentrating Green: How to Invest in Cannabis Extraction Companies

Nicholas Demski
Written by Nicholas Demski

Using intelligent strategies to better place your money in a niche segment of the cannabis market.

I’ll admit it, my investments in cannabis stocks have been abysmal this year.

I put in money earlier this summer and since then, I’ve lost roughly 20% of my initial investment. People have done better in bear markets, and I’m ruining my chances in this bull market. Thankfully, my mistakes are your blessing.

If I had listened to my own advice, I might be doing a bit better this year. Here are a few things to consider as you look into investing in extraction companies in 2019.

Look Out For Undervalued and Underfollowed Stocks

My biggest mistake was not doing enough research. I invested in a fairly well-known company, and their stocks cracked just a month or two after my initial investment.

For investors today who want to outperform their peers in the future, consider combing through the marketplace to find undervalued and underfollowed stocks.

There are stocks today selling for under a dollar that may one day reach into the hundreds of dollars per share. Imagine investing $1,000 in Canopy Growth back in the middle of 2017. If you had done so and just let it sit, that $1,000 would now be worth $3,457.

Interestingly, at that price for a buy-in, Canopy had already been considered a ‘well-followed’ stock. If you had bought the same stock just a year earlier for $1,000, you’d now be looking at $11,255.

It’s no wonder people are excited about cannabis stocks, but you have to pick the undervalued, underfollowed stocks.

Beware the Overvaluations of Large Companies

As the anticipation for continued legalization of cannabis builds around the world, some companies are getting a clear boost from the market.

The expectation that some companies will perform well in 5 or 10 years has led barely profitable companies to enormous valuations.

Take for example if you had invested your $1,000 in Canopy Growth and put it in earlier this year when their stock jumped to nearly $50 per share. Beware overvaluations; your $1,000 would now be worth about $500.

Importantly, they admit that, due to high costs of expanding the company, they don’t expect to be profitable for another 3-5 years.

Look Towards the Future

When picking cannabis stocks in the extraction sector, try to find companies that are either well-positioned to expand in the future, or who have a team of leaders or unique value-add that sets them apart from other extractors.

Don’t make my mistake and invest in a company just because you’ve heard the name over and over again.

About the author

Nicholas Demski

Nicholas Demski

Nicholas Demski's latest venture is TheCannabiologist.com. He's a poet, author, cannabis writer, and budding entrepreneur. You can follow his travels with his daughter on YouTube, Facebook, and Instagram @TheSingleDadNoma

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