Canopy Growth Corp (TSX:WEED) is one of the bigger names in the young marijuana industry and the company is eagerly awaiting the day when cannabis is legalized, likely sometime next year. Despite all the hype around the industry there are three reasons why I would avoid marijuana stocks.
First, right now the industry is in a honeymoon phase when companies and investors are only seeing growth and dining out on hype. There are still many laws that need to be enacted before legalization takes place which could hinder the growth prospects of a grower and seriously restrict the ability for a company to grow its brand. Consider how restrictive tobacco advertising is, as marijuana could be even more restrictive.
Second, there are many suppliers jumping onto the bandwagon, with Aphria Inc (TSX:APH) launching on the TSX back in March and Aurora Cannabis Inc (TSX:ACB) the newest to hit the market just last month. The supply is going to be saturated by the time legalization hits and the amount of growth available might be limited. Marijuana users might also opt to not go the corporate route and may still prefer to go to their supplier across the street.
Third, these companies all lack any distinctive moat that can set them apart from the pack. There is nothing to stop just anyone to start growing marijuana and starting their own business. Without a distinct advantage, it’s hard to see why one brand of marijuana would be better than another. There are no barriers, no distinct advantage that a company can claim to have over another, and without one makes it difficult to justify investing in Canopy Growth or any other stock.
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