Reasons you shouldn’t invest in Canada’s top cannabis stocks

When making a selection, there are always reasons for and against the choice you make. This means that you have to study both of these sides very carefully. Failure to do this, might see you make a decision that is not justified. When deciding on an appropriate investment, most especially, it is important for your choice to be justifiable. This will ensure that all your money does not go down the drain. The cannabis business has become very popular in Canada due to the legalization of medical marijuana High THC. It has seen very many persons invest in cannabis stocks with an aim to make more money. However, as attractive as this may seem, the following are reasons you shouldn’t invest in Canada’s top cannabis stocks:

  1. Black market existence – even with cannabis’ legalization, the black market is still able to attract a considerable number of customers. This is a disadvantage to the economy in that involved dealers do not pay taxes. Owing to this, their cost of production is lowered meaning that the final cannabis prices are low. This is one feature that makes the black market desirable. It is likely that illegal dealers will find a way to attract customers from the company you invest in. This might mean devaluation of your company stocks over an extended period. 
  2. Possibilities of future regulations – this industry is very sensitive as it deals with offering products that can be harmful to the human body. If, for instance, a lot of harm is identified in the future, restrictive government regulations might be put in place. These may limit the rate at which your company operates thus resulting in reduced profits. If this happens, then the cannabis stocks you invested in might not be as profitable as expected.
  3. Lack of enough differentiation – for any company to be profitable, it must have the differentiation ability. This means providing something different in comparison to its competitors. For instance, a five star hotel hoping to the best should provide what its competitors are unable to. This will then prompt similar hotels to do the same. As a result of this, healthy competition will be enhanced thus resulting in the industry’s growth. Most cannabis companies offer the same deals to all their customers. This means that a customer may not have enough reasons in terms of why they buy from their legal cannabis dealer. Owing to this, cannabis stocks across the board may be equally priced. This means that your investment in a certain cannabis stock is no different from another person’s
  4. Demand uncertainty – this is mostly due to the black market’s existence. Most cannabis companies and growers tend to push the product even if they are uncertain of whether or not people will buy. This then results in oversupply of cannabis which then lowers down the price with an aim to attract as many customers as possible. 

The most important thing is carrying out a lot of research before investing in anything. You should make a decision based on future expectations of the business to thrive. If you are unable to make the decision on your own, consult an economics’ expert. 

Factors Though Have Contributed to Failure of Cannabis Stock In Canada

Since legalization of cannabis in Canada last year, the stocks have dropped drastically. In the previous year, the stock was trading $12.52 per share. The stocks are now trading at around $4.16 which is     a third of the initial price.

For investors, this might be seen as the best time to purchase the stocks; however, chances are that the stocks may drop further.

Let’s see what is leading to the failure of cannabis stocks in Canada.

  1. Cannabis Low Sales

Most cannabis companies in Canada have experienced drop in sales TaleofTwoStrains. This is because the industry is still in its early stages of growth.

The earlier rise was probably contributed to the promises of growth in the industry and potential capability in the market.

However, it is worth noting that Canadian market only had an estimate of $5.2 for a period of  five years.

May be increase of retail pot shops will increase the sales in cannabis and hence increase the share value of cannabis stocks.

2. Oversupply

Due to legalization of the cannabis and high expectations of demand and growth in the industry, the supply has increased.

Due to legalization of cannabis in Canada, there was high expectation of drastic growth in the industry. However, the industry is still young and hence the demand is not as expected.

Oversupply and low demand of the products have also contributed to the failure of cannabis stock in Canada.

  1. High taxation

Expected high taxation of the cannabis has also contributed to failure in cannabis stock in Canada. Though the government has legalized cannabis, there might be high taxation and this fact is pushing investors away from the industry.

Heavy tax on the product is likely to promote the black market rather than promoting the legal industry.

With all those factors that led to failure of cannabis stocks in Canada, what are key takeaways for investors?

  • One of the biggest challenges in the industry has been sales estimation of cannabis. It is likely for the demand to rise after legalization and hence this might be the best time to purchase the stocks.
  • There are high chances of growth in the industry as Canada is planning to expand their market to overseas.
  • Canadian government acknowledged the fact that there are only a few retail shops available and they are willing to facilitate more retail shops to boost the cannabis sales.
  • Domestic demand is likely to increase hence rise in cannabis
  • The Canadian government is aware that high taxation of the product can only decrease the sales in the legal market and hence they are likely to reduce the tax. Reduction of tax will promote the legal market while increase in tax will promote the black market.
  • For investors who are focused on long term projects, this is the best time to venture into cannabis stocks as even though the stock value might continue to decrease, the stocks will eventually rise.

With all  the reasons identified that has caused failure of cannabis stocks in Canada, It  all depends on the long term investors to revive the value of stocks in the sector.