Exchange traded funds including ETFMG Alternative Harvest MJ, -5.70%, AdvisorShares Pure Cannabis YOLO, -6.91% and the simply named Cannabis THCX, -7.85% are at all-time lows.Rather than gloat — or cry because you own them — it’s always better to learn from market train wrecks. In this spirit, I rounded up seven key investing rules for everyone — cannabis bulls or not — from the marijuana meltdown.
That’s why cannabis stocks went to parabolic highs in February 2021, says Tim Seymour, portfolio manager of the Amplify Seymour Cannabis ETF CNBS, -5.69%. “Everybody thought cannabis was going to be legal, bankable and taxable.” And now, an all-encompassing cannabis-reform bill from Democratic Sen. Chuck Schumer of New York looks overly ambitious because it tries to do too much at once, says Goral. Incremental change is more realistic, starting with much-needed banking reform, says Goral. “We have clients that have to carry duffle bags of cash to pay their taxes. This is not safe.”
He’s avoided the group because cannabis is a commodity product with “negligible differentiation devoid of pricing power. For these to work, you’d have to count on a first-mover advantage to gain scale, cost and distribution efficiencies, and establish branding to build awareness, which is expensive.”
The pushback to my “avoid commodities” rule from passionate cannabis investors is that Starbucks SBUX, -3.96%, for example, sells a commodity, coffee, and it has been a fabulous investment. Which brings me to my next rule. “If you are hearing about something in the financial media, it is probably the worst time to invest in it because it is probably in a cycle of hype,” says Flippen.
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