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Cannabis investments are struggling, profits are taking a hit

Lo

by Lo

August 5, 2019 07:47 pm ET
Cannabis investments are struggling, profits are taking a hit

Investing in cannabis is a complicated endeavor. In doing so, one must be well educated on all of the intricate differences in products, the types of stocks, and legal implications. While the market is seemingly thriving, there is a looming atmosphere of uncertainty when it comes to investing because of cannabis’s illicit status in the US and lack of FDA approval. Those that find themselves feeling hesitant to pursue US stocks often try to get their foot in the Canadian market; which comes with a whole other set of problems. In its entirety, the cannabis stock market is a shaky area where there is much to be considered.

Why Canadian stocks are dropping

As of late, Canadian cannabis profits are plummeting. One reason being is that Canada’s legalization led to a countrywide supply shortage. The country is just not able to approve cultivation licenses quick enough thus negatively affecting the success of sales and ability to meet demands. If product shortages weren’t enough, there is also limited access to compliant packaging sources. 

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Why US stocks are falling

Taxes are killing cannabis profits in the US. While California takes the lead for the legal marijuana market, the astronomically high taxes are making it difficult for it to contend with the black market. In some areas, the tax rate is up to 45%! Without the burden of staying compliant, the black market community is more lucrative than ever and further tempting for consumers because the prices just don’t compare. It’s definitely harboring the success for the legal market. Another rising issue is the increased tariffs on supplies and equipment that are sourced from China. The consequences from the Trade War and the elevated expenses are inhibiting profits. 

Scandals rock the North American market

The cannabis market is no stranger to drama. Recently, multiple scandals have rocked companies like CannTrust Holdings for having illegal grows and Curaleaf for FDA violations. Investigations and a general distrust have resulted in a bit of decline for stocks. People are not going to feel encouraged to invest in an industry where businesses are being caught engaging in speculative operations. It’s just too risky. 

It seems that the lack of trust generated by scandals, steep taxes, and ineffective policy are wreaking havoc on stocks all around. The whole situation will remain hazy until solid regulation is implemented. It’d be in everyone’s best interest to take the extra precaution to conduct proper research, and also be confident that the companies that you invest in are transparent in their practices. As the world is slowly becoming more in favor of cannabis, there is a notable ‘green rush’ happening among those who want a piece of the pie. Be selective in choosing where you want to invest so that you’ll positively contribute to the cannabis cause and also benefit in the long term.

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