Special Situation: Just say no…

Article Excerpt

Share prices for many Canadian marijuana stocks have soared since mid-2016. They’ve since given back some of those gains, but investors are still attracted by their speculative appeal. However, the pioneers of an industry don’t always survive. The federal government’s plan to expand the marijuana market beyond medical use—with full legalization in 2018— threatens licensed producers. Now, they depend on regulated markets. There are also low barriers to entry for new competitors. If demand rises rapidly, tobacco companies and other big producers will likely enter the market. Considering their current sales, many of today’s producers have very high market caps (the value of all shares outstanding). That means they need huge revenue growth to justify even their current stock prices. We don’t recommend investing in marijuana stocks. —Scott Clayton, Senior Associate Editor Editor…