Pot stocks: Is now the time to invest in medical marijuana?

Is now the right time to buy into the hype and invest in this growing industry? Sean Mason, a senior editor with Small Cap Power, a website that reports on stocks, discusses the risks and rewards of looming marijuana regulation.

Sean Mason, senior editor with Small Cap Power, says long term, the future is bright for bigger companies

Marijuana legalization provides a tempting opportunity for investors, but one expert says it comes with a lot of risk. (Sean Kilpatrick/Canadian Press)

An air of optimism is brewing around Canada's fledgling cannabis sector.

In Alberta, a cannabis company is breaking ground this week on an 800 square-foot, state-of-the-art medical marijuana greenhouse near Edmonton.

Then, another startup out of Okotoks will launch an online marketplace, called on Saturday.

But is now the right time to buy into the hype and invest in this growing industry?

Sean Mason, a senior editor with Small Cap Power, a website that reports on stocks, spoke with the Calgary Eyeopener Friday about the risks and rewards of the looming marijuana regulation.

Q. When did investors start paying attention to marijuana-related stocks?

A. I would say after Justin Trudeau became Prime Minister. He actually campaigned on legalizing marijuana, and since then these stocks have gone crazy up until last fall when they really seemed to peak … but now some of that air seems to have been let out.  

Q. Why did those stocks take a tumble?

A. I think a lot of it has to do with the uncertainty around what legalization is going to look like. All we know for sure is that it should be fully legal by Canada Day of 2018, but we don't exactly know what that is going to mean — who is going to be able to sell it, who is going to be able to buy it, at what price.

Q. What are the risks of investing in these companies?

A. With early industries, there's always operational risks for one thing — whether they can execute on what they say they are going to do

Until we know exactly what the regulation is in Canada, these stocks could continue to drift, possibly lower. But I think long term, the future is bright for at least some of the bigger companies in the industry.

Q. If the rule of investing is buy low, sell high, isn't the falling stock prices an indication now is a time to buy?

A. If you're willing to take on a lot of risk, keep in mind these stocks are not for everybody, you have to be able to afford to buy. Basically don't invest more than you can afford to lose.   

If you wanted a good entry point, now might not be a bad time to get in for a little bit, but by all means, exercise extreme caution.

Q. Like the dot com bust, which recovered, will the cannabis industry become less risky down the line?

A. I would say yes. Bigger companies are looking to expand abroad — Aurora Cannabis, they recently signed an agreement to acquire a German medical marijuana wholesaler. Apparently Germany, with 80 million people in their market, could actually be getting cannabis as part of their national drug plan, so this is good for a company like Aurora.

Q.  If I was willing to take the risk, what should I look for in a company in my own due diligence?

A. Just be cautions, do your research. I would suggest, if you're new to the industry, to stick with the bigger companies like Canopy Growth, which is the biggest, or Aphria or Aurora Cannabis.

These companies are actually operating profitably right now, but even though the bubble has burst a little bit, they're still fairly richly valued, but a lot of growth stocks are.

With files from the Calgary Eyeopener