USA News Group – While it may appear enticing to jump in on the legalization of cannabis by investing in the sector, leading reviewers are coming out strong against putting your money in pot stocks. They say it’s no place for your money.
In just the past several months, cannabis stocks have been taking a beating and that fact should serve as a warning to investors as to what’s really taking place in many of the companies that have flooded the small cap markets. Companies including C21 Investment Inc. (CSE: CXXI) (OTCMKTS: CXXIF), Beleave Inc. (CSE: BE) (OTCMKTS: BLEVF) and Iconic Brands Inc. (OTCMKTS: ICNB) have made a good show of entering the legal marijuana market, but the numbers don’t seem to indicate they are profitable.
It’s obvious the cannabis industry is experiencing a bubble and as such, you would expect companies to pop up and promise goodies, which will in turn elevate their value. An especially damaging statistic about emerging cannabis companies is that most are not profitable, even after several years of development. Invictus MD Strategies Corp (OTCMKTS: IVITF) (CVE: GENE), for example, has been in the business since 2014 but has yet to turn a profit. In the last twelve months, the company has seen its stock decline by 90% with a continuous stream of negative news.
Invictus losses have been mounting for years at an astonishing rate:
2017: EBITA was -6,054,000
2018: EBITA was -15,100,000
2019: EBITA was -33,410,000
Source: https://ca.finance.yahoo.com/quote/GENE.V/financials?p=GENE.V
The recent implosion of marijuana stocks has put Invictus as well as many other Marijuana companies into red alert situations. Most are having extreme difficulty raising any capital to keep the lights on. Invictus has had to make major management changes, including Trevor Dixon the CEO and director of the company. The stress to keep the company alive seems to be talking its toll on management and the company’s share price. Invictus share price started the year at $1.69 and has continuously fallen to the current price of 0.16.
An Industry Built on Hope and Hype
The marijuana industry is currently growing at a phenomenal rate thanks to its decriminalization in various jurisdictions. For years, it has been illegal to grow sell and process pot since it was a "Schedule 1 drug" on the same prohibitive list as heroin. But the laws have changed and in Canada, for instance, they have legalized recreational cannabis use. A number of states, including California, have followed suit. There is hope among its proponents that marijuana will be legal at the federal level as more legislators have been advocating for the substance in recent times.
Marketers have successfully promoted the cannabis sector and that has gotten many investors interested. Investors have been pumping millions of dollars into the cannabis industry with the promise of incredible returns, but this may all be a dangerous gamble, and not one the small guy should be taking.
Pressure to Perform
Pot is a commodity regardless of how or where it is grown. Proponents of marijuana will argue that different varieties give a different feeling when consumed. They will highlight the presence of THC and CBD and its medicinal significance, but all this hype is irrelevant to investors. Regardless of how many varieties of pot are there or how many uses it can be used in, it is still pot and nothing more. Versatility won't make it lucrative and just like all commodities; it has to deal with market dynamics.
The reality is that many of the companies are just not coming through with the goods. For example, Invictus MD Strategies has been in the business for over 4 years, but it is not making profits. That’s common to small cap and growth cannabis stocks. In the case of Invictus, numerous acquisitions and news of major celebrity endorsements have enticed investors as they believe the company is creating a sustainable model. However, investors need to look closely at the recent events in the company.
Invictus has issued a raft of negative news releases about the company in 2019. These include major fundamental shifts in the company’s business. It has been forced to sell off major assets such as Future Harvest Developments and Canandia Bioceuticals, which the company had originally held as value assets. Then in August, front man and rock legend Gene Simmons dropped the company from his endorsement role as Chief Evangelist. Those and other events have upended the company so much that it has been forced to reorganize its entire management. That’s another serious red flag for a growth company.
Based on the flurry of constant setbacks, Invictus MD Strategies’ shares have dropped 90% in the last year. It would be easy enough to attribute that to slumps and growing pains in a young company, but Invictus has been shedding its value for the last three years. Equally important, the company has not managed to convince investors that their struggles are over yet. That’s going to make it incredibly hard to attract and keep investors.
Invictus is a clear example of where most of the emerging cannabis companies are headed. For reviewers, that’s not a good sign. They are predicting things are going to get tougher and tougher as the market matures. So, buying into the hype of promising prospects could be an investor’s worst mistake.
Enhanced competition
In the last three years, cannabis prices have been reduced by more than half as competition intensifies. Growing competition is what cannabis companies such as Invictus MD Strategies have to contend with. In Oregon, which was the first to legalize pot in 2015, there were handful growers then and they enjoyed high prices. But that’s shifted to the point where they are making half of what they used to.
Competition in the cannabis industry is now intense and more companies are flooding the market. The industry is staring at major price compression, which could result in most cannabis stocks falling apart. Industry leaders such as Canopy Growth Corp. and Tilray almost doubled their revenue last year, but even their stock prices tanked.
After much hype, most investors are starting to fold out of cannabis stocks. Some industry segments might present opportunities going forward, but growing competition means that the margins will be diminished. Investing in this cannabis sector now poses a high risk and as pundits put it, “is no place to put your money.”
High profile emerging companies that are participating in the small cap market for cannabis include:
C21 Investment Inc. (CSE: CXXI) (OTCMKTS: CXXIF) is a cannabis operator based in Canada. it focuses on cultivation, processing distributing and marketing of cannabis products. It owns the Phantom Farms, Silver State Relief, Swell companies, and Eco Firm Farms. The company has lost over 83% of its share value to date in 2019.
Beleave Inc. (CSE: BE) (OTCMKTS: BLEVF) is a Canadian medical cannabis operator that grows and sells recreational and medical marijuana products. The company has recently announced the pending sale of two of its main operations in Saskatchewan and Ontario, Canada. The company has never been profitable and its last reported a net-loss for the three-month period ending December 31, 2018 was $2,260,015 or $0.01 per share.
Iconic Brands Inc. (OTCMKTS: ICNB) is a company that specializes in the development of beverages for itself and other entities. The company focuses on capital raising and identification of investment opportunities in running enterprises. Iconic Brands has not been profitable to date and shows a net loss of $0.07 cents per share in its last quarterly report ending June 2019.
For more information about developments in the marijuana space and potential pitfalls of current small cap marijuana stocks, see the article at USA News Group: https://usanewsgroup.com/2019/08/12/gene-simmons-leaves-role-as-chief-evangelist-for-invictus-md-strategies/
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