speculation

Is It Finally Time to Invest in Marijuana Stocks?

Brittany Lyte — Fri, 09 Jun 2017 08:30:08 +0000

Politics aside, there's a lot of green to be made in the burgeoning legal marijuana market. As more states move toward legalization, the potential to profit grows higher and higher. But in many cases, it's still just potential.

While the industry is worth watching for investment opportunities, there are also some very real downsides to investing in cannabis right now. Read on for our roundup of the pros and cons of investing in weed.

Cannabis industry growth is soaring

According to cannabis research group ArcView, legal marijuana sales in North America increased by 34 percent to $6.9 billion in 2016. A prediction from investment firm Cowen & Co. puts the U.S. market at $50 billion by 2026. More than half of all U.S. states have already legalized the use of medical marijuana, while eight states and counting have legalized recreational use for adults.

Another triumph is the story of cannabinoid group GW Pharmaceuticals, whose stock has skyrocketed nearly 1,300 percent in value in less than four years. What's more, a growing percentage of Americans are supportive of marijuana legalization. Public support for legal cannabis has grown to 60 percent, according to a 2016 poll by Gallup. All of this makes for fertile grounds for further cannabis industry growth.

Marijuana could become the next dot-com bubble

When it comes to cannabis stocks, Canada is leading the scene. Unburdened by the depth of opposition that recreational marijuana has raised from the U.S. Attorney General and many in the U.S. Republican party, Horizons Medical Marijuana Life Sciences ETF — one of the first cannabis ETFs in North America — started trading on the Toronto Stock Exchange in April, almost instantly becoming one of the month's most popular funds. Propelling the marijuana ETF toward further success is a rise in investor enthusiasm sparked by the legislation recently introduced by Prime Minister Justin Trudeau to legalize cannabis across Canada. (The plan is expected to pass.)

For a new fund, this level of accomplishment is rare. But experts caution that the marijuana market remains dicey. Canada's landmark marijuana ETF has 14 members, some of which include drug companies whose profits largely draw from sources outside marijuana research. Add to that a 0.75 percent management fee — higher than the norm. The bottom line is Canada's marijuana stocks are still largely speculative, so investors should be cautious.

Marijuana businesses are hampered by a cash-only economy

Marijuana businesses are completely shut out of traditional financial services, which means the industry is forced to operate in a cash-only environment. Banks and credit card companies have largely been unwilling to work with cannabis firms, even in states where marijuana use is legal, because federal law still prohibits them from taking marijuana money.

Whenever a business is forced to deal in cash, there are security risks that its stockholders inevitably have to shoulder. Working in a cash economy, for example, means that a business is more susceptible to robbery or employee theft. It's also a growth inhibitor.

Penny stocks still dominate the cannabis trade

Most marijuana stocks on the market are penny stocks. Translation: They're pretty much one big gamble. With a share price of $5 or less, these stocks are unpredictable, and getting accurate and timely financial stats about them can be difficult. Of course, even a penny stock can experience explosive gains. But at this point, experts say it's little more than a coin toss.

Despite impressive growth, most marijuana stocks are losing money

What do most marijuana stocks have in common? They are losing money. Just two cannabis companies in operation can claim a positive EBITDA (earnings before interest, taxes, depreciation, and amortization), which is an operating performance-focused metric commonly used by investors to guide their investment decisions.

Those companies are the Ontario-based Canopy Growth Corp. and Aphria. As for GW Pharmaceuticals and all the others? Shut out from traditional banking and tax deductions, they are operating in a completely experimental world where they're left to learn as they go.

Don't go chasing unicorns

Experts warn that some marijuana companies are little more than a sham. Without a sound business plan, they are roping investors in based on an idea rather than substance or experience to put that idea into action. Don't get roped in. Be skeptical and do your homework. If a company or investment opportunity appears too good to be true, it probably is.

Marijuana news websites that only praise a company, for example, might be getting paid to do so. "Check financial websites like Yahoo Finance to see if management is selling any of their shares," Barry Clark, CEO at cannabis company FlowerKist, recently told Forbes. "If they believe in the company, they won't be selling their shares."

This article is from Brittany Lyte of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Dropping the Price of Gas to $2.50 a Gallon in a Week

Paul Michael — Thu, 28 Apr 2011 10:24:09 +0000

If speculation can raise the price of oil, why can't it drop it?

That's the question that's been taking up a big chunk of the conversation between my friends, and I have to admit, it seems very possible.

President Obama announced recently that he plans to withdraw the $4 billion in oil subsidies because the companies are making too much money. They don't need them, they don't deserve them, and that money could go to much better use.

You have no arguments from me on that one. Oil companies need tax breaks like millipedes need more legs. And when Republicans start agreeing with repealing the tax breaks, well, you know this is a non-partisan issue if ever there was one.

But while I applaud President Obama's intentions and motives, I don't see this being the answer. In fact, I think it could make matters worse. And the reason comes down to one word — speculation.

Speculation Drives the Market

Right now, oil prices are being driven up by speculation, not by sudden demand or lack of resources. Yes, the wars are certainly not helping, but they do not account for the price rising by almost $2/gallon since the election of 2008. That's double the price in just two years. Has your salary doubled in two years?

You may recall that a few years ago, the average price of a gallon of regular gasoline climbed well over $4. That was down to oil speculation, pure and simple. The oil companies made astonishing profits, and then the price fell again, below $2/gallon. (See also: Gas Efficient Driving)

What happened? Did we find a massive reserve of oil bubbling below the surface of an easily accessible stretch of land? Nope. It was speculation, too.

Why Can't the President Use Speculation to Lower Oil Prices Right Now?

Is that a very naive outlook? Or could it actually work?

For instance, what if he gave a huge speech tomorrow stating that America is...

...putting billions of dollars into exploratory drilling.
...opening up Anwar for oil extraction.
...cutting major deals with Saudi Arabia and other oil-producing nations.
...opening up access to our massive oil reserve.
...siphoning oil from the Iraqi oil fields.
...demanding a minimum 60 mpg in vehicles by 2018.
...expanding wind, solar, and nuclear power programs, reducing the need for oil.

What would happen? Oil prices would drop sharply, and quickly.

It's a simple concept. More oil means less demand for what's out there right now, and prices fall. Gold continues to rise in value, but imagine what would happen to the price if an enormous gold mine, abundant in the stuff, was discovered.

Rare Is Valuable; Plentiful Isn't

Similarly, President Obama's intentions to cut the tax breaks mean one thing to me — higher prices. Sure, we get to stick it to the oil companies and save $4 billion, but that's money we aren't going to see any time soon. Remember, the country has quite the debt to pay off. But if oil companies are getting less money, that will only make the price of oil go up. If they aren't getting help to do more drilling, oil is even more valuable.

Now, I'm not saying we do any of the things I suggest President Obama should say. The stock market runs on rumor and, yes, speculation. If there's the merest hint that oil is about to become a lot more plentiful, traders will dump oil in favor of something else. Probably gold. And that's fine by me. I don't need gold to drive to work. Gold does not play a major role in every single thing we use, from the computer in front of you to the food you'll eat today. Gold, silver, diamonds, platinum, and frozen orange juice, they can all hit record highs. But oil, it's one of life's necessities, and it should not be traded in the same way. So, why not use speculation in our favor for once?

I believe gasoline will hit $5/gallon this year. It may even reach $6/gallon. I also believe that some well-chosen words by our government, regardless of actual intention, could help avert that eventuality. Many of my friends agree. But what about you?

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Do You Own a Domain Name That’s Worth a Fortune?

Paul Michael — Mon, 30 Aug 2010 12:00:09 +0000

Chances are, many of you reading this already own a few domain names. At around $8 a year these days, they're cheap enough. I own several, usually because I have a "bright" idea that I think would make an awesome product or website and snag the domain name before someone else does. Then it sits there gathering internet dust.

Many people do the same as I do, and then forget about those websites. The option to auto-renew makes it very easy to sit on a website name for years and not even remember that you own it. And some of those domains can be worth hundreds of thousands of dollars. Even millions.

A highly publicized example of this was the sale of the domain name sex.com a few years ago. That particular domain name sold for $14 million dollars! That was clearly going to be a very popular web address considering the amount of money the online pornography industry is worth. I am by no means suggesting you go out and buy smutty web addresses, by the way. No, there is money to be made from any web address if the right person is in the market for it.

A friend of a co-worker of mine recently sold a domain name he bought back in 1994. He received over $100,000 for it. Not bad for an $8/year investment. Do a little searching on the internet and you can find many examples of this. But how do you know if you have one of these domain name goldmines?

Well, first, use a little common sense. If you look into your archive and see a domain name that is a short, popular word, it's going to be valuable. Three-, four-, five-, and six-letter word domains are generally very difficult to come by these days. If you have one, consider putting it up for sale. An auction site like sedo.com is a great way to sell off your domains, minus a small percentage for the service.

Next, remember that .com addresses are still the most sought after. The .info, .tv, .net and .org addresses can still be worth a ton of money though, so don't rule them out. But generally speaking, .com is where the money is.

If the domain name you own isn't obviously popular, it still doesn't mean it's not valuable. You could have a made-up word like "plunty" or "gigazig," and although it's meaningless, it could be the next Napster or Starbucks. If you put it up for sale, you may be surprised to find that a startup business wants it.

There is also a growing business in domain name speculation. This is NOT cybersquatting, which is buying a domain name with the bad faith intent to profit from the goodwill of a trademark belonging to someone else. For instance, buying nikeshoes.com and waiting for a big fat check from Nike.

This is speculation, pure and simple. You buy a domain name that's free and hope that someday you can sell it for a profit. For instance, I could see if "gigazig.com" is free, and if it is, I could snap it up. It will probably be worth nothing for many years, but hey, you never know. For a while I owned "goalfrenzy.com," which was going to be a website dedicated to the best goals from soccer matches around the world. Of course, I never got around to creating the site and the domain name expired. Who knows, though. If I held on to it and a magazine or TV show appeared called Goal Frenzy, then that domain would now be worth cash.

So, if you have a few domains sitting around doing nothing, go and check them out. Maybe you're sitting on something that could be worth thousands and thousands of dollars. Good luck to you.

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: