The marijuana industry is starting to look like the next big thing. Nearly every major beverage company has either jumped into the cannabis space or they are in talks about bringing their own unique brand of THC or CBD infused drink to market. These types of developments have given pot stocks the appearance of a wounded animal, and all of the wolves and wannabe’s of Wall Street are desperate for a piece.
But the hype is getting ridiculous. It’s to the point where it is almost impossible to do a Google search for “marijuana” without being bombarded by headlines claiming that pot investments are the magic key to financial freedom.
This kind of news is especially misleading for longtime cannabis advocates who have waited decades for their precious plant to be recognized as the cash crop they always knew it could be. Many of these folks are first-time investors, and they are champing at the bit to put their life savings to work for them in the world of weed. Some are not even worried about the potential risks, because, after all, the business of growing and selling marijuana is such a flourishing industry, it can’t miss, right?
Well, not necessarily.
At this point in the game, marijuana stocks are grossly overvalued. Even the best-looking horse in the race could still trip and fall somewhere near the finish line and end up snapping its neck. At the moment, investors are throwing so much money at any cannabis company with a logo and letterhead that price-to-sales ratios for these firms are imbalanced. This means a cannabis business could be worth billions on paper while bringing in less than impressive sales. Many of these stocks are so inflated that they could be construed as better buys than some of the leading stocks on the S&P 500.
But it is all an illusion.
Some experts compare what is happening right now with cannabis stocks to the dot-com boom. And anyone that was part of that nightmare understands that these kinds of speculative investments – the act of dumping cash into what looks like the next best thing — can go south fast. Cryptocurrency is another prime example of investors sucking up to the get-rich-quick dream. Almost always, when people start getting wrapped up in the hype, substantial amounts of money are lost in the end.
If you’re reading this article and thinking, “I don’t give a damn what the experts say, I’m putting my money on weed,” there are still some important details that need to be considered.
First, in order to invest in the cannabis industry, a potential investor must find a securities firm that is willing to advise clients on this particular market. And it can be tricky. Because marijuana remains illegal at the federal level, many investment companies are shying away from these types of trades for fear that they could get caught up in the crackdown tactics of Attorney General Jeff Sessions. And trying to invest in the Canadian cannabis market, which is set to go fully legal in a matter of weeks, can also prove challenging.
Tim Phillips, president of the Illinois-based Jade Investments & Retirement Solutions and financial advisor for Raymond James, told Forbes that each investment operation is “making its own decision as to whether it will trade shares of companies associated with the cannabis market.”
So even if someone wants to invest in cannabis, they may have to do some searching around before tracking down a consultant who is willing to facilitate.
Secondly, since pot stocks are overvalued and especially considering that the cannabis industry is far from reaching maturity, Phillips argues that there are better investments to be had. He believes companies like Apple still have more potential than anything connected to the cannabis.
“We like the Apple story,” he said. “Take this week’s unveiling of the Series 4 Apple watch. The technology is opening a new platform for Apple in the area of health-related devices. The company realizes that most of its revenue was tied to device sales. Now, it wants to increase revenue in services, such as AppleCare and cloud storage.
“We believe this promise of growing revenue in services will help alleviate some of the pressure Apple may have experienced in the past to put up blockbuster numbers with the release of each new iPhone,” he added. “Keeping in mind that every investor’s circumstance is different, it may not be suitable for all, so I would encourage you to speak with a financial professional prior to making an investment decision.”
Other investment professionals agree that Apple is strong. A recent article from Seeking Alpha suggests that the growth behind the company’s service revenue, solid advancements with new iPhones and steady gains after hitting the $1 trillion cap makes the stock a promising buy for long-term investors.
But for those people adamant about investing in the cannabis trade, Phillips says it is best to err on the side of caution.
“I would stress understanding the risks involved, such as the political risks, and exchange rates between Canadian and American currency,” he said. “I would not recommend investing any more money than you are willing to lose.”
Disclaimer: Mike Adams does not own stock in Apple, nor does he have any investments associated with the cannabis industry.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Timothy A. Phillips and not necessarily those of RJFS or Raymond James. All opinions are as of this date and are subject to change without notice. Raymond James Financial Services, Inc., its affiliates, officers, directors or branch offices may in the normal course of business have a position in any securities mentioned in this report. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results.
Article originally found at https://www.forbes.com/sites/mikeadams/2018/09/23/apple-is-still-a-better-investment-than-cannabis-industry/