The marijuana industry is starting to look like the next big thing. Nearly every major beverage company has either jumped into the cannabis space or they are in talks about bringing their own unique brand of THC or CBD infused drink to market. These types of developments have given pot stocks the appearance of a wounded animal, and all of the wolves and wannabe’s of Wall Street are desperate for a piece.
But the hype is getting ridiculous. It’s to the point where it is almost impossible to do a Google search for “marijuana” without being bombarded by headlines claiming that pot investments are the magic key to financial freedom.
This kind of news is especially misleading for longtime cannabis advocates who have waited decades for their precious plant to be recognized as the cash crop they always knew it could be. Many of these folks are first-time investors, and they are champing at the bit to put their life savings to work for them in the world of weed. Some are not even worried about the potential risks, because, after all, the business of growing and selling marijuana is such a flourishing industry, it can’t miss, right?
Well, not necessarily.
At this point in the game, marijuana stocks are grossly overvalued. Even the best-looking horse in the race could still trip and fall somewhere near the finish line and end up snapping its neck. At the moment, investors are throwing so much money at any cannabis company with a logo and letterhead that price-to-sales ratios for these firms are imbalanced. This means a cannabis business could be worth billions on paper while bringing in less than impressive sales. Many of these stocks are so inflated that they could be construed as better buys than some of the leading stocks on the S&P 500.
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