As marijuana becomes more mainstream in the U.S. and Canada, many people think this is a great investment opportunity because the return on investment will only increase as marijuana becomes legal. Right? Not necessarily. Good business practices are what make a business successful, even the marijuana business.
Penny stocks are the stock of a small company that trades for $5 or less per share. Some trade on the New York Stock Exchange (NYSE), but most are over-the-counter (OTC) trades. You can buy or sell penny stocks only electronically on the OTC Bulletin Board or through privately owned Pink Sheets. In general, penny stocks are highly speculative and if you invest, you could lose most of your investment. Penny stocks are popular because they can also provide huge gains. Here are some of the safest choices for investing in cannabis stocks for 2019.
Aleafia Health is sold OTC: ALEAF and is a classic penny stock. The share price is $1.00, but it has a market cap of $280 million and is still developing cultivation assets that make it one of the biggest in Canada. It made an all-stock acquisition of Emblem which combined two medical-service providers that cultivate their own cannabis. Together they have 40 clinics and growing, and they are set to be one of the top 10 cannabis growers in Canada.
It has an interesting business model. With a network of medical clinics, it is in a good position to sell its homegrown cannabis products to its patients. It may also mean the patients will be more likely to use cannabis and purchase derivative products. The thing to watch is if it can leverage its growing potential into supply deals domestically and internationally.
Auxly Cannabis Group
This is a very small company with share prices at $0.59, but this shouldn’t stop you from considering an investment. It is worth more than $350 million, with shares outstanding. It has a dozen licensed growing partners and other growers and plans to retail about 170,000 kilos every year.
An investment in Auxly will take time to get a good return because many of its partners don’t have production ready for market yet and may not for a year. That’s why it sells share offerings to raise capital. Auxly also focuses on the derivatives market, which means it is holding dried cannabis flowers for processing. This is the risk factor, but for a long-term investment, it has potential.
The Supreme Cannabis Company
This OTC: TSCC Company is a grower with a share price of about $1.20, but has the same market cap as Auxly Cannabis Group. While Aleafia Health and Auxly Cannabis Group are major producers, they sell discount and average-quality marijuana. This market is highly competitive. The Supreme Cannabis Company focuses on producing premium and ultra-premium quality cannabis. There is almost no competition in this market. This means there is no worry of oversupply because there are only a few growers that provide a high-quality product.
Supreme Cannabis uses genetics to produce premium marijuana and is one of the largest yielding facilities in the cannabis industry at 45 percent above the pot-growing industry. Also, the market for premium cannabis is rarely influenced by the usual cannabis culture. This means they are not susceptible to downturns in the economy, which results in regular cash flow.
All three of these interesting penny stocks are far from profitable. According to Wall Street, Supreme Cannabis will be profitable in 2020, even if the profits may be small. The main problem ahead for average quality growers is making supply deals, as this is very competitive. This is not much of a problem for premium growers, but Wall Street is keeping an eye on it.
In spite of all the above, Supreme Cannabis has a business plan in place for selling a premium-quality product that makes it a good cannabis penny stock investment for 2019.
Canopy Growth Corp
The stock has gone up in 2019 30-fold. The reason this company is showing success is that it has low costs and generates significant revenue.
What to Avoid
Here is a quick list of some companies it may be better to steer clear of when investing in cannabis stocks because they don’t have solid financial underpinnings?
- General Cannabis Corp – an advisory group with nothing to do with cannabis
- GreenGro Techs – grew fast based on a cannabis concept and now at two cents per share because of no strong financial concept.
- Aurora Cannabis – seems to be doing all right and listed on the NYSE, but seriously overvalued
When choosing a cannabis penny stock to invest in, you need to determine if the company is infatuated with the marijuana concept or is a serious business with a good business plan. If you go with the former, there is a very good chance you will lose all of your investment because selling pot is serious business.