Forget the gold rush, first-time investors are looking to cash in on the green rush, but financial advisors are warning those looking to cash-in on soon-to-be legalized cannabis to think before they invest.
The rapid growth of these businesses is attracting veteran investors with deep pockets, but financial advisors are also seeing many first-time investors looking to get rich quick.
“Be careful, this is obviously a new industry,” explained Kevin Mullane, senior investment advisor with National Bank Financial. “A lot of these companies don’t have a lot behind them at this point in time, in terms of revenues and earnings, more importantly earnings,”
He stressed the importance of ensuring potential investors do their research, calling the future of cannabis stocks “speculative investments” due to the still unknown future of how marijuana will be sold and regulated in each provincial jurisdiction.
“There’s a lot of speculation behind how this is going to work. Here in Alberta, we don’t know how exactly how it’s going to come down.”
“Be careful if this is money you can’t afford to lose,” said Mullane. “If this is going to be your first investment, I can’t tell you how many times I’ve seen people, their very first investment is the most speculative stock they’re ever going to buy in their entire life, they lose money on it and they never come back to investing in the stock market.”
Big players like Vancouver-based Aurora Cannabis, which is building an 800,000-square-foot production facility near the Edmonton International Airport, and Ontario’s Canopy Growth are continuing to see their stocks climb.
“These companies have gone a long way in short period of time, Canopy Growth has a market cap of well over $2 billion now, they don’t have the revenues or earnings to justify this at this point in time,” Mullane said.
Mullane adds there’s potential in this new industry, with possibly billions of dollars to be made every year.
“If this was liquor coming to the market, I think people would be just as excited.”