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article imageCannabis investment soars, but will the bubble burst?

By Tim Sandle     Apr 19, 2019 in Business
Investment in cannabis firms is becoming increasingly popular, as more firms look set to go public. Is this a sensible area for investment, however? Some market followers warn about the bubble that might well burst.
With the legalization of cannabis products in Canada and in many parts of the U.S., the cannabis economy continues to grow and this presents an ideal field for startups to attempt to establish themselves, especially if they can develop and market and popular or niche product. There are even companies like MariMed Inc., which provides professional management services for marijuana start-up companies.
As an example of the growth of cannabis firms, Florida-based Greenlane Holdings, Inc. launched its initial public offering in April 2019, appearing on the Nasdaq stock exchange. At the end of the first day of trading, Greenlane's share price climbed 70 percent higher above its initial IPO price, reaching $17 a share. The company has a popular range of products called the Volcano vaporizers.
The growth in cannabis product suppliers and the current popularity of cannabis products presents such firms as popular investment choices, including consumers that do not invest all the regularly. For those looking to invest in niche products there are debates on some websites as to whether millennial investors should plump for cannabis products or cryptocurrencies.
Is cannabis investment a wise choice? Some market commentators are warning that the expansion in the number and relative value of cannabis firms is simply a bubble that is set to burst.
Concerns have been flagged by Morgan Paxhia, co-founder and managing partner at Poseidon Asset Management. In an interview with IG Group Paxhia warns that the biggest risk to the cannabis industry is potentially "heading into too euphoric of a situation where there’s too much capital chasing too few areas of this industry’ which could lead to the ‘bursting of a bubble’."
In market terminology, an economic bubble occurs when a market goes through a very fast inflation of value, often fuelled by speculation and a crowd of investors hoping make quick gains. This increase is hen followed by a quick decrease in value, called a "crash" or, using this metaphor, a "bubble burst".
In terms of who is investing, Investopedia reports that while seasoned investors are putting money into cannabis firms, they are doing so relatively carefully and rarely committing more than five percent of their assets and rarely going above an investment of $25,000. In contrast, cannabis firms are attracting a high number of causal investors, which is helping to swell the value of many firms.
While cannabis firms will continue to grow and the market remains ripe for new entrants, more seasoned financiers are playing the cannabis investment game more cautiously than those investors keen to support brands producing products that form part of their lifestyle.
More about cananbis, Marijuana, cannabis products, cananbis investment
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