Why there is fear of buying Marijuana penny stocks?
With the legalization of marijuana, the new Pharma companies are growing and so are the investors. The average return of these stocks showed results more than 3.3 times increase in the yields. On an average, the Marijuana stocks are up more than two times on the trailing-year basis.
The growth in the number of investors for Marijuana stocks is due to the sales growth in legal weeds. The public views about Marijuana are constantly changing and some of the blue chip investors also drifted their ways towards Marijuana penny stocks. California was the first state in 1996 to legalize medical cannabis for pharmaceutical usage. In the present times, the favorability of hitting an all-time record of Marijuana supporters reached the level of 64%. It is expected to put a pressure on the Washington government for considering the rescheduling of the drug to save their constitutional seats.
Taking an example:
Cannabis Research Firm (ArcView) made an announcement of $6.9 billion of sales growth (34%) in the year 2016. The forecast of the company through 2021 in North America is expected to be 26%, which will be a huge number. The company is expected to lead high profits for investors and is projected to $22 billion level.
Fear of buying Marijuana Penny Stocks
Marijuana stocks are differently initiated in the stock market. The penny stocks related to Marijuana have the trading value of $5 per share and $200 million market capitalization.
Four reasons to fear Marijuana Penny Stocks
- Most of marijuana Penny Stocks are losers
Most of the penny stocks related to Marijuana became losers. It is the biggest reason to fear from the Marijuana pennies. The investors get lured by the low price of these stocks and aim at becoming a millionaire by purchasing more quantities of these stocks. The success stories of Marijuana stocks in micro-cap category are very rare. Still, people are willing to buy the stocks with the greed of becoming rich within no time. There was a time in the 1990s when these penny stocks used to rise in big numbers. However, the scenario in today’s times is different and the companies have higher probabilities of getting bankrupt or play fraud with the innocent investors.
It doesn’t mean that all marijuana penny stocks are not worthy. You need to select the right stocks by researching the company and making in-depth analysis before making your purchase. There are some pot stocks with low valuation and the high-end principle grounds to earn profits for their investors. Some penny stocks would be favorable but finding the right one from the pot is required to get the right benefits. A few marijuana stocks like Scotts Miracle-Gro (SMG) can be considered for the purchase.
- Issues for funding
Marijuana stocks lack funding. Penny stocks will require the accumulation of capital for ensuring the strong backend of the company. The investors look forward to getting an increased price for their stocks to earn revenue from their investments. The stocks are floated in the market for raising funds in the market capital. When the company’s cash position is raised, the value of existing shares is diluted and the investors are hurt.
Marijuana stocks have faced many disadvantages in the United States. US taxation doesn’t allow the businesses dealing with the illegal substances to take deductions from income-tax and the organizations end up to pay taxes to the gross profits by making an assumption that they’re profitable. Banks don’t rely on the marijuana companies and hence, don’t give loans or credits.
- Marijuana is not legal everywhere
The federal level of the US doesn’t allow cannabis to date. Till now, it is legalized in Canada, Mexico and a few other countries in the world. The federal government is still considering the reschedules for finalizing their legalization in the states. The tough regulations are a hindrance to the industry’s tough future. Even the small weed companies don’t have a positive scope with regard to its legalization.
- OTC Exchange trading
Most of the marijuana penny stocks are listed on Over-The-Counter exchanges. These exchanges are better than the pink sheets and have improved listing standards. There is very less lucidity of the companies and it doesn’t reveal the financial status and policies of the Marijuana companies. Latest information and stats of an organization helps in making research about it and reveal its actual position. Cash flow, liabilities, and projection of revenues can determine the right company for investment. However, these points are hard to find for the OTC Exchange companies as it doesn’t include the required information. The level of risk increases.
Canadian stocks are highly influenced by Marijuana stocks. There are many established medical companies like MedReleaf having a listing on Toronto Stock Exchange and OTC boards. Investing in marijuana stocks is very risky as the major raw material is illegal. If you are confused about any company, it would be good to leave the thought of buying the stocks.
Marijuana stocks are overhyped. There are some paid advertisements on business channels, radio, newsletters and other sources through which the marketers try to attract the investors and prompt them to purchase the stocks. The best stocks to invest are the better buys judged by your own analysis and research. The drug is proposed to get legalized in the coming future in many segments of the US.
There are absolutely no securities associated with micro caps. The investors need to be very careful about making their purchase. There are no rules associated with penny stocks and hence, if you are thinking about investing your hard-earned money on Marijuana pennies, think a little more and analyze the portfolio of the company to make the correct investment. It will be a mere disadvantage to deal with the wrong companies as your money and confidence will be shattered. The investors are required to be smart enough to find out the strengths and weaknesses of a company and deal with the best options to avoid failures. Penny stocks can really make money only if procured with vigilance.