TREND, Are your 27 POT Stocks overvalued based on fundamentals? Are yours the ones with the strongest balance sheets? Do you think cannabis is a bad industry?
Since I only began building my cannabis portfolio during September, and have been scaling in, I have a few winners even on these down crappie days. By sheer luck I avoided the great cannabis PPS recession.
The whole industry is being revalued right now. It's definitely been going on since the Spring when the euphoria wore off after legalization a year ago.
By the time the SAFE Banking Act passes the Senate and is signed into law by the President, the great cannabis recession is going to play out.
In the meantime Health Canada is moving too slow to open outlets. They are choking the distribution channel. But more will open each year helping to improve all cannabis companies financial health. Some won't last though. The weakest will wither on the vine and die.
Too much investment and carrying costs went into building out too much grow capacity. Supply and purchase-able demand needs to be rebalanced. The giant cannabis growers turned the flower into a commodity. Most cannabis business plans never figured their selling price per gram and gross margins would be as low as they are right now.
Companies diluted the heck out of shareholders to raise equity capital to do much of that expansion.
Look to invest in companies that find ways other than through dilution to raise expansion funds.
If they are raising equity capital to pay the rent, maybe you should dump those even if you love the company.
In America, the MSO's have to operate inefficiently by duplicating in every state they enter the seed-to-sale formula. Imagine if GM needed 50 factories in every state to build each of its models. How crazy would that be?
Announced M&A's are being revalued as I type. Other M&A's are being cancelled.
Consolidation and bankruptcies are inevitable. The shake out is already beginning. It will reach a bottom. Valuations are becoming much more reasonable.
Private and public equity raises are going to start drying up for companies that can't show a path towards profitability.
The companies with the strongest balance sheets, growing revenues and best of category products are going to be the survivors.
Institutions are going to find the companies in the best financial health, with the best potential for steady revenue and bottom line growth, and then take large positions in them.
