Hold or Sell Canadian Pot Stocks? – Nov 2017

This month has been crazy just like it was the same month exactly a year ago. Canadian marijuana stocks having been doubling in a matter of weeks. On Twitter there’s people suffering from mania and FOMO. It’s going to keep on going higher!

Anything can happen but if you’ve been in this pot stocks game you have to think a crash is inevitable. Every time these stocks run up they crash badly. It’s not stopping people who have suffered through these crashes though from thinking it’s not going to happen this time.

What has changed?

They’ll tell you that this time around we are closer to legalization which is true. This time around though the market caps are way higher. Some of these stocks are trading at 2019 and even 2020 projected earnings. To justify their market caps means they have to sell a lot of weed which is not going to happen in 2018 since it will only be legal for the last half of the year.

Yes, there’s the Germany opportunity and possibly others as well but there’s not going to be any significant income from those sources for a long time. In the short-term, the LPs minuscule revenue cannot justify their market caps.

I don’t know about you but if these stocks crashed before the year ends I would feel like a fool if I didn’t at least trim. Have a look at your pot stocks portfolio, if you sold everything or even just a little, that number you see would be the worst you’ll ever do if they kept going up. I just wanted to give you a little perspective.

Everyone’s situation is different though. Perhaps the money you have invested is a small amount of your wealth so maybe it’s no big deal to just let it ride. If it’s a significant portion of your worth then you might be rolling the dice. In the end it is up to you. If I had never sold a share I would be much better off today so there is that as well. My error in hindsight was not buying back on the dips.

I guess we’ll see what happens.

Marijuana Legalization: Online Sales Before Pot Shops

Rumour has it that day 1 of legalization in Canada will not see line-ups around the corner with people waiting to get into stores. The great consolation rumour is that there will be legal recreational marijuana available online.

It can’t be that big of a disappointment, can it? If online shopping was so horrible, Amazon’s stock price would not be hovering at the $1000 mark and Blockbuster video would still be around.

I’m very curious if this could play out to the advantage of certain LPs. If you shopped for weed in a retail store it would be kind of difficult to differentiate the different brands. If at home on your computer shopping for bud you can take your time and read about each LP if you so wish without feeling rushed by some dude behind you eagerly waiting to buy his first gram of legal marijuana.

This also plays into the first mover advantage theory. The first LPs to have presence in a legal market will establish branding advantage. If there’s going to be at least 10 LPs you can buy weed from online, subsequent LPs to enter the market after are going to have a difficult time getting customers.

Think about what people will see when they shop online.

Canopy Growth: Largest licensed producer in Canada. Facilities in at least 3 different provinces. Canopy Rivers who offer additional marijuana from other licensed producers. Tweed, Mettrum and Bedrocan products. Tweed Main Street online store.

Every other LP will pale in comparison to Tweed’s description. I’m also sure they will find some way to incorporate Snoop Dogg’s affiliation. If you’re a first time buyer and you have all these LPs to choose from you’re likely going to just try Canopy’s product. People gravitate to the safest bet. By the time retail outlets are running, people will already be accustomed to the brands they like.

It’s hard to say if online sales will be done through a provincial distribution channel or through an LPs website. If through an LPs website it could mean greater profits.

Marijuana Legalization & UN Treaties

As far as an average schmuck can tell, the road to marijuana legalization appears to be on its way. Those of us with Canadian pot stocks though might not feel as secure as others. Aside from the legislation not being passed yet there’s still the question of the UN drug treaties that the Canadian government hasn’t addressed.

If Canada does not deal with the legalities of their position with the treaties by July 1st, 2017 then they will not be able to legally legalize marijuana in the eye of international law. It sounds like a big deal but maybe it’s not. Still, investors do not like uncertainty. More importantly I do not like uncertainty.

One of the options and possibly the best option is for Canada to simply withdraw from the treaties. It makes you wonder why they just don’t go ahead and do this. Does the government have more ambitious plans with dealing with the treaty issue? When asked about this issue last week, Trudeau deflected with a politician’s answer leaving everyone to wonder.