Ok Trudy, I’ll eat a (very) small slice of humble pie on this if that makes you feel any better
I got a call from an old friend this morning with those hard to accept words “I told you so”.
What on earth was he on about?
Well the US mid-term events have had a ripple effect on the marijuana market it seems. I expect there are quite a few Mary Jane investors out there who were surprised to get a lift in the market courtesy of Donald Trump – as his alleged ‘request’ that AG Jeff Sessions resign has removed one opponent of legalisation from the equation.
That resignation, plus the vote in the state of Michigan (the 10th overall) to legalise recreational usage and the votes in two other states, Missouri and Utah, to legalise medical marijuana prompted a broad increase in cannabis companies share trading. So now we have a majority of US states, 33 in all, who have legalised some form of marijuana use.
Ok, I admit it, the early worms have probably got a little of the bird…just.
Having noted all that I still stand by my original statement that this is a stock to be more than wary of and that very close scrutiny needs to be undertaken of the debt/equity ratios of many of the marijuana stocks.
For example look at Tilray, with a market cap of some $13 billion dollars but hugely contrasting and significantly smaller revenues of just $10 million dollars a quarter. Basic diligence shows that TLRY sold $10 million dollars of products but lost $12 million dollars. This, and many other marijuana stocks, appears to mirror a pattern seen in the dot com bubble stocks a while back.
Whilst there are hints of some major established players in non-aligned industries, such as the rumour that Coca Cola could possibly present cannabis-infused beverages to the market in the near future, I just don’t see this as a long-term high, pardon the pun.
The other factor to consider is that those considering a short-term ‘flutter’ on this have jumped on the band-wagon already – this severely limits any leverage to work the stocks higher right now; any more short-sellers entering now, enticed by the current media hype, will force the stocks downward.