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Is now the moment to invest in Canada’s cannabis market?

Is the cannabis boom over? The biggest Canadian cannabis stocks have gone through some significant drops this year, and a series of scandals in the sector did not help the situation. After these companies released their third quarter results, investors are re-evaluating their choices. We examine whether it is still profitable to invest in the Canadian cannabis market.

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This picture show a cannabis leaf.

The cannabis stock market is currently in its infancy. Related stocks didn’t appear on the New York Stock Exchange until 2018 and it’s still difficult for businesses to thrive in the United States due to a federal vendetta against the substance.

Even in countries where it’s legal, the cannabis market is volatile and changing fast. With that in mind, why might it be a good idea to invest in Canada’s cannabis market right now?

Dropping stocks

When Canada legalized cannabis in 2018, the market took off with professional and casual investors putting their money into the newly expanded stock market. Things were looking up for the cannabis market but after that initial excitement, things started to drop dramatically.

By the time companies started releasing their quarter three reports, many stocks have dropped in value by 50 to 75%, leaving investors worried about whether they should be selling these at a loss or waiting for things to turn back around.

Another problem that investors are experiencing is that the stocks that are available are incredibly inflated, costing between 100 and 200 times the company’s revenue. That isn’t hard, though, considering that in spite of seemingly record sales, the companies were generating no profit. Even big companies like Aurora Cannabis, which is one of the industry flagships, has reported that it likely won’t be profitable until 2020.

This might be enough to discourage casual investors from putting their money into the Canadian cannabis market but that is only one side of the coin.

Dangerous scandals

The entire cannabis industry is under fire due to a growing number of hospitalizations and deaths related to black market THC vape cartridges. While the CDC has finally recognized that it’s not the THC that is causing the illnesses but the Vitamin E Acetate in the illegal cartridges, much of the damage has already been done. Media outlets have taken it upon themselves to demonize the cannabis industry, blaming them for the illnesses and deaths, even though the THC vape cartridges in question were produced illegally and sold on the black market.

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These allegations, even though they’ve been disproved, tend to turn public opinion against an already volatile industry in both Canada and the United States. Cannabis companies have a lot of work ahead of them to stem the tide of negative PR caused by these dangerous illegal THC vape cartridges. The full impact of this scandal remains to be seen.

This picture show a cannabis product sold in Canada.
When Canada legalized cannabis in 2018, the market took off with professional and casual investors putting their money into the newly expanded stock market. (Source)

Expected growth

In spite of a lack of profitability, Aurora Cannabis is still producing more products than any other company in the world. They’re expected to produce more than 625,000 kilograms of cannabis every single year. Aurora Cannabis is one of the biggest cannabis companies in Canada, making it the most held cannabis stock in the world.

It’s not sales that are slowing down. Globally, sales have tripled between 2014 and 2018, rising from $3.4 billion to $10.9 billion — and new reports estimate that they could continue to climb to $40 billion by 2024.

It might seem like the Canadian cannabis market is circling the drain, the industry is expected to grow exponentially in the next few years.

Invest or wait?

Should you be investing in the Canadian cannabis market or should you wait for the market to stabilize a little bit before putting your hard-earned money on the line?

Right now may be the best time to put your money where your mouth is, so to speak. The cannabis market is at an all-time low since the substance was legalized in Canada, but it isn’t likely to stay there. Right now is the perfect time to pick up some of these stocks for a fraction of what they were selling for at the beginning of 2019.

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No investment is without risk, and that goes double for the cannabis industry which is under such scrutiny in so many of its markets. That being said, if you’re looking for a sign to tell you that you should invest in Canadian cannabis, consider this your sign. The global market is expected to grow dramatically in the next five years, making now the perfect time to get in on the ground floor.

(Featured image by Roberto Valdivia via Unsplash)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.

Kayla Matthews is a technology blogger who regularly contributes to Inc.com, MakeUseOf and The Gadget Flow. Follow Kayla on Twitter or check out her technology blog, Productivity Bytes.