With some weed stocks reaching nosebleed levels, investors want to get in on the action, Cassandra Farrington, the CEO and co-founder of Marijuana Business Daily, a trade publication, separates the facts from the hype.
“In so many ways, cannabis is going to interact with, be disruptive to, in some ways be served by or serviced pretty much with any other market out there you can think of,” said Farrington on Yahoo Finance’s Midday Movers. She pointed out all the ways cannabis will boost and develop other markets: the energy resources used to grow and develop plants, how marijuana shops have revitalized retail and constructions of greenhouses for the plant.
The cannabis industry has grown to become a major industry globally. According to Statista, spending on legal cannabis is expected to reach $63.5 billion worldwide by 2024, last year it was $16.6 billion. According to the Annual Marijuana Business Factbook, in the U.S. alone the marijuana industry could create an estimated economic impact that could soar past $75 billion annually by 2022.
Farrington said there are three growing areas in the cannabis market: medical, social and wellness.
“You’ve got this very distinct medical area where it’s specific formulations for specific ailments and for with specific needs associated with it,” she said. “On the other side, you have cannabis as a social lubricant, as a replacement for alcohol and some of those social activities, social substances that people consume today. And in the middle, you have a huge wellness play. It’s everything from Coke’s [sic] announcement about their move into potentially making some deals in this space to create a recovery drink for athletes all the way through to soccer moms who are having trouble sleeping and so they use a CBD supplement instead of using Ambien.”
Marijuana stocks were put on the map last month after multinational beverage company, Constellation Brands, Inc. (STZ) invested $4 billion in Canopy Growth Corp. (CGC), a Canadian marijuana company. Since the announcement marijuana stocks have been on the rise.
Most recently Tilray, Inc. (TLRY) stock rose by more than 600% since its Nasdaq IPO in July. On Tuesday, the company overtook Canopy to become the most valuable marijuana company in the world after it announced it had gained the approval from the U.S. Drug Enforcement Administration to import marijuana to the U.S. for medical research. On Wednesday, the company’s stock was so volatile that trading was halted five times. After hitting a high of $263.54 Wednesday, the stock closed Friday down 30% at $123.
Despite the huge growth potential, Farrington said some marijuana stocks aren’t coming close to justifying their “high” valuations.
“Do I think that there are some stocks out there that are far, far, far ahead of their actual fundamentals? Absolutely, it would be stupid to say otherwise,” said Farrington. “That said, of those stocks, there are absolutely going to be Amazon.coms and there’s gonna be some Pets.coms.”
Farrington shared some tips on how to avoid getting caught up in the marijuana stock euphoria. She said investors should do their homework and research a company before investing to understand everything about the company, including who is leading it.
“There are people who are pumping out information, making it sound really rosy for a short period of time, so look at the history of those organizations, how long have they they’ve been around, who their backers are,” she said.
Maylan Studart is a reporter for Yahoo Finance