By Charles Roques
Having thick skin is a necessary asset when investing in the cannabis sector. Pity the over-the-counter small investor cautiously entering the cannabis sector, either the long-time advocate or someone who knows the product well from a personal standpoint.
It is bad enough that they have to endure the stigma of the stereotypical stoner, still-questionable legality or ignorance-induced bias from observers, they also have to endure the derision of the investing world, especially long-term investors, who consider penny stocks nothing more than day-trading fodder for gamblers. Not to mention the sector also attracts opportunists who exploit its less-restrictive financial reporting requirements, juggle their books or set up outright scams.
These negative perceptions only aggravate apprehension over the volatile share prices. There are good reasons for these stereotypes, but small individual investors have little recourse for avoiding them. Many of the good companies don’t have complete control over their share prices due to, among other reasons, their growth and expansion being hampered by legal restrictions. At this price level they are also vulnerable to market manipulation.
However, it’s not all bleak, because for as much as one can’t avoid this situation there is an upside—for now, the good, bad and ugly all seem to coexist at the same relative price level. In time, good companies will rise to the top but so will their share prices. So along with that thick skin, a pioneer spirit could be an advantage for getting a foothold in the sector.
A helpful analogy might be with visual artists who rediscovered the inexpensive, unused factories and textiles mills of NYC’s Soho, Boston’s Fort Point Channel or other large cities and essentially created the now-fashionable loft style.
For starters, just like cannabis, it was illegal to reside in a building zoned as commercial, but artists saw the potential for inexpensive, large well-lit studios and decided it was worth the risk. They were willing to live in less-desirable areas, building their own baths, showers and makeshift kitchens. Having great large rooms for domestic space was historically something only the rich could afford, but artists painted their huge spaces white to enhance the light from the freshly cleaned oversized windows and created beautiful spacious parlors because they had vision.
This perseverance was vital during the transition of abandoned industrial districts into fashionable neighborhoods, later earning artists great rewards, as loft living became trendy. They weren’t in the safest neighborhoods, but residents learned to be cautious about coming and going, which could also apply to the cannabis sector in general.
You will have losses but they won’t be this cheap again and it would be more positive to think of them as necessary “renovation” expenses for improving your own space. Be prepared to spend some money and be cautious about your comings and goings until your neighborhood gets “re-zoned.” Also, check out the neighbors. It is not about the amount you invest, but the percentage that you earn or lose, so be modest at the beginning until you learn more.
Having thick skin and being cautious while doing your homework puts you at a distinct advantage, especially for those who recognize the potential rewards of being in this undeveloped neighborhood. The prices are very reasonable at this entry-level and a good time to enter for a cautious investor of modest means. This trial and error learning phase will cost much more later on. Perseverance and caution could mean lofty returns, not to mention respect.