Whether you call it hemp, cannabis, herb, pot, or marijuana, this industry has the potential to generate billions in revenue for the government in the form of taxes and for the companies that grow and produce cannabis products.
Right now, most of these stocks are not profitable, but that won’t last forever. Recreational marijuana is a veritable cash cow.
And investing in cannabis is not limited to producers or growers. You could also choose to put money into retailers, drugs that use cannaboids, or tobacco companies looking to make big investments in cannabis.
Pros and Cons of Investing in Cannabis Producers
Cannabis has the potential to be big business.
According to the Washington Post, legalization could bring in over $132 billion in federal tax alone, plus around 1 million jobs.
States that have already enacted legalization are already seeing green. For instance, the state of Nevada sold $425 million in marijuana during the first year of legalization in the state.
Those sales netted the Nevada government almost $70 million in revenue. There is money in pot.
With the stakes so high, mergers and acquisitions in this industry are high and so is uncertainty.
Legalization is a real issue. In the United States, marijuana is still criminal at a federal level, despite its legalization in various states for medical and in some cases, recreational purposes.
This makes operating in the United States difficult. Companies may raise capital by going public on non-US exchanges or over-the-counter exchanges. In turn, they tend to be subject to less scrutiny.
To make matters worse, many investors are drawn in by clever advertising and a desire to get in early. Sometimes, the companies are simply not worth it. Yet, the high levels of interest inflate the value of the stock and mislead investors.
Doing your due diligence is important. Make sure you understand what a company does, why, and where it is going before you make an investment. Diversification is also a good idea.
Let’s start by looking at Aphria (NYSE: APHA).
What Does Aphria Stock Do?
Aphria started off with medical marijuana. It also maintains investments in other pot stocks, and it has been successful.
Aphria made $33 million from its portfolio in 1Q18. However, recreational marijuana is where the company is headed.
Aphria has been concentrating on getting the right personnel in place for a big roll-out when the time comes. Plus, it’s been building out its facilities.
One of the things that makes the company unique is that it uses a greenhouse strategy for all of its growing. This method produces more potent cannabis with minimal cost as opposed to growing outdoors or inside facilities.
Should You Buy Aphria Stock?
Aphria’s operations are focused on Canada and other places where marijuana is legalized or at least tolerated.
“The company has operations in Argentina, Colombia, and Jamaica, and has an option to enter Brazil. Beyond Latin America, Aphria made a strategic investment in an Australian company and has received a cannabis license in Malta,” explains MarketWatch.
“In the past, Aphria had substantial holdings in the U.S. But the company was forced by TMX, the operator of the Toronto Stock Exchange, to divest those holdings because, while pot remains illegal under U.S. federal law, it ran the risk of having its stock delisted.”
Aphria is listed on the NYSE (NYSE: APHA). It has a 52-week range of $3.75 to $13.45 – but some reports say that the company is going to fall, hard.
Is Aphria Stock Price Going to $0?
Whether or not Aphria is going to drop to $0 is a matter of opinion.
Hedge fund manager Gabriel Grego is shorting the stock. His fund, Quintessential Capital Management is effectively betting that Aphria is on the way down.
They call it a “Black Hole” and say that the company is “part of a scheme orchestrated by a network of insiders to divert funds away from shareholders into their own pockets.”
QCM claims that insiders at Aphria are buying up worthless companies through shell organizations then selling them to public companies at an inflated markup. This gives the insiders access to big profits today while investors are set up for major losses in the future.
These bold claims have yet to receive a response from Aphria, but some of the details from the QCM report are true.
The publicly-traded company DID buy large stakes in ABP, Colcanna, and Marigold – and they certainly seemed to overpay for those investments. It is also true that Aphria executives had stakes in Nuuvera BEFORE Aphria acquired it.
That said, Aphria is still under fire. It is currently the defendant in at least three class action lawsuits (from RM Law and the Schall Law Firm amongst others) – all of which claim the company is misleading investors.
Aphria Stock Price Forecast: What Next?
However, Aphria is innocent until proven guilty. It could tumble on these claims or it could follow the lead of another marijuana producer called Cronos (NASDAQ: CRON).
That company saw a major sell-off after Andrew Left’s Citron Research published a report that claimed Cronos was “deceiving the investing public.” Cronos bounced back from the unfortunate episode and now Altria (NYSE: MO) (of cigarette fame) is investing $1.8 billion in the company.
Like Cronos (NASDAQ: CRON), Aphria may experience a sell-off because of this QCM report, but how long it will last and what happens next, who knows? Investors in Aphria need to be careful, but that doesn’t mean there won’t be an opportunity in the sell-off.