The worth of cannabis in the stock market continues to rise and fall each month. As a relatively young industry, these fluctuating values are attributed to several factors and influences, since the intrinsic stock value itself is difficult to evaluate at this time.
What’s Affecting Stock Market Prices?
The instability of marijuana stock value, as seen in the recent crash in October following legalization of recreational marijuana in Canada, depends significantly on investor sentiment. The following factors can influence the decisions of investors and affect the value patterns of marijuana stock.
Branding
The ability of successful marijuana companies to brand themselves and their product is one of the biggest factors, according to Greg Taylor from Purpose Investments. For example, while Canada is barely entering the industry, it is still heavily regulated by the federal government’s strict regulations on packaging and labeling. American companies are allowed more creativity and the ability to distinguish their product. Appealing, unique products make certain marijuana stocks a good buy.
Hype
Another factor that can alter cannabis worth in the stock market is industry hype. Speculation and interesting news about an upcoming product or partnership can raise stocks. For example, news about a possible relationship between Coca-Cola and Aurora Cannabis to create beverages with cannabis boosted Aurora’s stock in September. However, industry hype is mostly short-term interest. Coca-Cola later clarified that it was not interested in cannabis products at the time, leading to Aurora’s value drop.
Price Correction
Sometimes, stock can become overvalued and its downfall is due to stock price correction. Despite the stock taking advantage of a scarcity and investors rushing in to enter the marijuana industry, the lack of business fundamentals to support the current price leads to a price correction that balances it. An example of such an event is Tilray’s late September mini-crash, which also led to other losses with cannabis companies such as Aurora, Cronos, and Canopy in reaction to the crash.
Uncertainty About The Long-Term
The cannabis stock market is volatile and evolves constantly, especially as gradual pot legalization affects stocks. A portfolio with higher marijuana proportion or use of margin is considered risky. Margin can increase the value of an account during the ideal times for marijuana stock growth. A bad time for stocks, however, also means that the account value will plummet.
The marijuana market lends itself to long-term investments and is better approached with care. Marijuana stocks are best suited to investors that can afford to risk and to those who have a small marijuana proportion in their accounts.
Legalization Of Cannabis
The legalization of cannabis can expand on the profit opportunities made by companies. The potential for a wider market encourages companies to focus on increasing production of marijuana and cannabis products. Just like the industry itself, legalization is still evolving and is not available in every market yet, creating some limitations and other complications that can lead to lower stock values.
Value Growth
The legalization of recreational marijuana in Canada in October led to a boost on cannabis stock. Annual sales were predicted for around $5 billion and companies such as Aphria are expecting to produce 255,000 kilograms by January, 2019 for multiple uses of cannabis. There is also the growing market in the United States, where 33 states have legalized medicinal marijuana, while 10 states have approved its recreational use. Recreational marijuana is where the biggest profit comes from, and when compared to Canada’s restrictive packing policies, the United States’ branding supremacy has growing potential as the process of legalization continues.
Value Loss
The potential for larger demand increases the value of stocks among investors. Value is also volatile, and legalization comes with its own hurdles. The United States still denies a federal legalization process for marijuana, which limits its potential as one of the biggest markets in the world. The legalization of cannabis in Canada also led to a small crash due to the overvalue of certain stocks, and there is a potential for further loss caused by possible factors such as the:
- Desire for tangible results
- Black market
- Wait for development of various products
- Oversupply over time
- Lack of legalization in other countries
Conclusion
The stock value of cannabis will continue to shift as the market develops. To keep up with the economics of marijuana, continue visiting Dank Budz, your resource for everything in the cannabis community.
