Home » marijuana sin stocks » When Will The Cannabis Bubble Burst? Here Are 5 Factors To Consider…

We’re in a cannabis bubble.

If you didn’t know that, now you do. Everywhere you look, people are talking about pot stocks like they were talking about tech stocks in 1999.

We’re not complaining. It’s a new industry; we’re fascinated by it like when a kid discovers a Playboy magazine for the first time.

But it’s clearly a bubble. It won’t last.

So the question investors should be asking is: when will the cannabis bubble burst?

Of course we don’t know the answer (our crystal ball may or may not have been converted to a bong recently) but here are a couple things to consider as you decide for yourself:

1. Pot isn’t legal everywhere in the US… yet. And in Canada, where it’s mostly legal, it’s complete completely legal at every level and jurisdiction. That means: new customers are discovering it as the dominoes fall and legalization grows. Therefore, there’s still some upside in the market; it hasn’t become saturated yet.

2. Problem is the media is in a feeding frenzy right now while they publish stories of weed stocks, weed businesses, weed entrepreneurs, and weed users, trading on the potentially lurid and scandalous popularity of the topic. It generates newspapers sales and clicks so they love it. This has the effect of saturating the public market (it probably won’t necessarily saturate the buying market, as described in #1, but the public could grow weary of the topic, which means there will be fewer stock buyers to drive up the price.

3. Companies are still figuring out how to supply cannabis to the public, which means there are new businesses and business models and partnerships. This will lead to more companies coming online (publicly traded or not). On the one hand, this can be great because it creates new money-making opportunities for investors. However, it can also be bad because: some companies will start and crumble in a very short time; meanwhile, legislation will struggle to keep up with the new strategies and models that entrepreneurs are creating. For example, watch for pot tourism as a growing opportunity that could be worth investing in.

4. The above point, though, has a shadow-side that people don’t realize: with so many companies coming on board, it can create an over-supply of cannabis, which will drive down the price if that supply isn’t consumed by the market quickly enough. (This depends on a couple of factors: how quickly new users start consuming versus how quickly producers can meet demand; it’s a fine balance).

5. There is a potential economic crash on the horizon. Unfortunately we don’t know for sure what the effect will be on pot stocks at this point. If a lot of people lose their jobs, we believe this could actually increase recreational pot sales since it’s not an overly expensive item so people will treat it like an indulgence. Therefore, it could be reverse-correlated to the economy (this remains to be seen though; it’s still too early to tell).

So, what to do next? Should you buy? Should you sell? It’s hard to tell at this point but if you invest in weed, consider these 5 factors to guide your decisions. We’ll see growth in the near future other other factors could put a lid on that growth too.

DISCLAIMER

Nothing on this site is a recommendation because, hey, I can't read your mind and I don't know what you have in your portfolio, and I'm not a licensed financial advisor. So never EVER trade without doing your due diligence. If you want more information about this fascinating topic, please check out the Sin Stocks Disclaimer page which basically says the same thing but more emphatically.