Should you invest in pot stocks? How do you invest in the cannabis sector?

By Dale Roberts, CutTheCrapInvesting

Special to the Financial Independence Hub

It’s the industry that’s taken the investment world by storm. And Canadians are leading the way thanks to the legalization of marijuana for personal use. You can essentially become a seller/dealer of Mary Jane in legal fashion. Oh how times have changed.

Many Canadian investors have already made a lot of money off of this Sweet Leaf, as Ozzy Osbourne sang. He actually sang “I love you sweet leaf” for Black Sabbath. I grew up in a neighbourhood where the Sweet Leaf and Black Sabbath were very popular. I stuck to listening to Black Sabbath and playing Sabbath in a rock band. Ya, I think we played Sweet Leaf in front of our high school. I discovered I was too paranoid to smoke the stuff.

Come on now, try it out

Straight people don’t know, what you’re about
They put you down and shut you out
You gave to me a new belief
And soon the world will love you sweet leaf – Ozzy

These are more than risky

The legality risks to ‘dealing’ pot have certainly disappeared. You can simply (legally) buy the stocks or funds. The industry as a whole carries incredible risks as it’s in the beginning stages. But there is incredible potential. A Financial Post article and BMO suggested …

…

The growth potential for the industry is incredible. The problem is it is an industry and an investment that is built on hope. Everything is a projection and an estimate of future profits. Companies have to make real profits and growing profits over the longer term to make monies for an investor. With almost all of the Cannabis companies there are no current profits. If you invest, you invest in companies that mostly lose money.

And today, to know where to place your pot of monies is a wild guess. We have no idea as to what companies will survive and if they will make profits. In this video from The Financial Post, Greg Taylor — a portfolio manager and Cannabis expert from Purpose Investments — suggests …

We have no numbers to deal with right now, nothing to go on … There’s too many players in the Canadian market.

Here’s the short-term returns history for the Purpose Marijuana Opportunities Fund. Inception date was January of 2018. Yes it’s quite impressive.

But keep in mind that any profits for investors were created by way of buying that hope at $1000 and selling that hope for $1600. Investors have been willing to pay more for hope. And profits may certainly arrive. You might be of the opinion that if sector projections are somewhat accurate that profits will arrive for many of the players. The thing is we don’t know who will survive. That’s why perhaps buying a market index fund or a managed fund makes a lot of sense. At least you’d be buying the potential of the total sector.

Horizons offers pot stocks and dividends?

You might suggest ‘Dale are you sure you have not been smoking some of that stuff?’ No, but it’s true Horizons delivers a dividend from a Cannabis fund where the underlying companies largely do not make profits and do not pay dividends. They can create dividends as they loan your stocks to short sellers. There are many who will bet against these companies and sector.

Here’s the link to the Horizons Marijuana Life Sciences Index Fund.

This certainly gives new meaning to the term ‘Yield’. The distribution yield at the time of the latest fund fact report in December of 2018 was 4.5%. And yes, the Purpose Fund also pays a distribution. At least you get paid to wait for real profits.

And the returns history for the Horizons fund has also been more than impressive.

But we can see that it has been quite the wild roller coaster ride. I’d invite you to read this post that details the adventures of a novice investor who embraced Cannabis Stocks. Here’s 10 Things I Learned as a Novice Investor Investing in Weed Stocks.

This was investing on steroids, but I was still the skinny kid getting sand kicked on him at the beach. I made some good trades. I made some bad trades. I celebrated. I cursed myself. Grey hairs accumulated. This is what I learned trading weed stocks as a rookie investor.

What I learned from investing in a sector without profits

I’ve been here before. When I started to invest real monies it was at the beginning of the dot.com era; yes, the beginning of the internet and internet-related companies. We did not care if companies made monies, we analyzed companies based on eyeballs: how many clicks are they getting? I kid you not. Profits were not important. Sound familiar?

It did not end well. When ‘how much you making’ became a serious question again, tech heavy indices fell by some 80%-90%. In the end, and again, it will come down to real profits.

It’s not up to me to tell you how much to invest in this nascent sector. But know thyself. And know the risks. You might keep any speculative investment (based on hope) to a very modest level. Many would suggest only invest monies you’re prepared to lose. And you don’t have to be an early investor. Heck, you might even wait until enough of them make a profit.

Questions to Dale cutthecrapinvesting@gmail.com or better yet leave a comment on this post. Got any pot? Are you holding?

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Dale Roberts is the Chief Disruptor at cutthecrapinvesting.com. A former ad guy and investment advisor, Dale now helps Canadians say goodbye to paying some of the highest investment fees in the world. This blog originally appeared on Dale’s site on March 20, 2019 and is republished on the Hub with his permission.