Marijuana Penny Stocks Are Dominating
Penny stocks are among the most high-potential plays in the stock market. Having said that, there are fewer and fewer of these stocks around.
Which makes marijuana penny stocks such exciting prospects for investors. Not only is the pot industry bound to grow larger in the near future as legalization expands globally, but pot penny stocks may see massive gains during that period.
Penny stocks (or microcap stocks) are stocks that, as the name implies, are very cheap. We’re talking sometimes literally one or two pennies.
These stocks are famous for their volatility, which isn’t always a bad thing. The main reason these stocks are so cheap, after all, is that their companies have relatively low market caps. That, in turn, means growth is easier to generate.
Think about it. It’s exponentially easier to turn one dollar into two dollars in the real world. On the stock market, it’s similarly easier to turn $100.0 million in market cap into $200.0 million in market cap than to turn $10.0 billion into $20.0 billion.
At the lower end of the spectrum in high-ceiling markets, there’s still tons of opportunity for expansion. But the bigger a company gets, the less opportunity it has to grow, and the less chance it has to double or triple in size.
A good example of this is a legacy company like Amazon.com, Inc (NASDAQ:AMZN). At around $1,800 per share, it would be a stretch for the stock to make huge gains overnight.
Conversely, penny stocks (and specifically marijuana penny stocks) can experience rapid growth. We’re talking 100% gains in a matter of days. The possibility of doubling your investment in the span of a week is tantalizing, and that’s why many investors are drawn to the promise of microcap stocks.
And that’s what makes pot penny stocks particularly enticing: this industry is a sure thing. Which isn’t to say every marijuana stock is a sure thing, but we know that the legal pot trade will be worth billions of dollars in the near future.
Many countries are relaxing their laws day by day, opening the door for these stocks to proliferate.
After all, there’s already billions of dollars in sales in the marijuana black market. As we transition that money from the illicit trade to the legal one, many pot stocks will be able to reap the benefits of that market explosion.
Consider that, a few years ago, Canada’s legal marijuana market was worth nothing (because the cannabis was, after all, still illegal). Now it’s worth billions of dollars. All this in a few short years.
So the opportunity is there for younger companies to turn the explosive market expansion into financial gains.
Marijuana penny stocks, despite being volatile, are actually among the least volatile microcap stocks around. And that makes them extremely appetizing for investors.
Many new companies will sprout up that will make claims to the billions of dollars in sales that the legal marijuana sector will produce year after year.
Getting in on these companies when their shares are worth nearly nothing could lead investment portfolios to swell with profits (just ask anyone who invested early in Canadian marijuana stocks).
Why Pot Penny Stocks Are So Unique
There’s more to the marijuana penny stock trade than just the sheer potential. This may be one of the last times we ever see penny stocks pop up in a market that is this rich in value.
Don’t get me wrong, there will always be low-priced stocks, but they are increasingly being relegated to long-shot industries and other prospects that are, shall we say, less than certain.
A good example is the batch of massive tech initial public offerings (IPOs) we’ve seen as of late.
From ride-sharing app stocks to meat-alternative stocks, these companies soak up millions upon millions—sometimes billions—of dollars in private equity investment.
All these private dollars have enticed companies to stay private longer instead of risking their necks on the public market, where investors demand more immediate results.
It’s a shift in the way the stock market operates, something that has been years in the making.
The number of public companies, for instance, has dropped dramatically over the past few decades.
In 1997, there were 8,884 companies listed on U.S. stock exchanges, primarily on the Nasdaq and the New York Stock Exchange. Now the number is less than half that.
The decline has generally been unaffected by market falls or rises, instead showing a rather a clean and steep descent.
The effect is that there are fewer opportunities for regular investors like you and me.
Part of that is due to growth of monopoly-like companies, and part of it is due to a healthy flow of private capital into these companies.
Essentially, these companies don’t have to turn to the public for funding when there’s so many private investors looking to invest early in the next Facebook, Inc. (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), or Amazon.
So, while penny stocks still exist in good supply, they are typically in industries that have less-solid fundamentals.
The marijuana industry is an outlier in this regard.
While many debate whether marijuana stocks are overvalued or undervalued, what is settled is that the industry is worth billions. We know this because the marijuana sector has already been operating for decades, giving us a wealth of data from which to draw; all the sales were simply illegal.
The illegal sales being in the billions of dollars shows us that legal marijuana companies have the ability to develop a multi-billion-dollar industry that is sure to expand in the near future.
The only thing they have to do is find a way to convert those illicit sales into legal sales as the drug is legalized around the world.
What we’re left with, then, is a number of marijuana penny stocks that are operating in an industry that is proven to be worth billions. That is a rare, rare combination. And due to the changing ways of the stock market outlined above, it’s only going to get rarer.
What ended up actually working in small investors’ favor was the draconian laws in the U.S. and elsewhere. Due to the prohibition against cannabis, many private investors were hesitant to put money into what amounts to an illicit trade in many parts of the world.
Even in the U.S., where the federal government has heavily relaxed its prosecution of the War on Drugs as it pertains to pot, banks are still reluctant to touch pot businesses for fear of legal retribution.
The proposed law Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act) would make it easier for banks to hold marijuana money (and invest in marijuana companies), but that’s just now entering the Senate, and it may fail to pass into law.
The point being, due to the retrograde laws against marijuana, private investors have missed out on investing in pot stocks. And that miss could be your gain.
The pot penny stocks that have been cropping up lack the millions of dollars in private investment that other companies operating in such a rich industry would normally be flooded with.
That lack of private investment means there is a rich opportunity for small pot stocks to grow rapidly in the near future.
The Opportunity for Marijuana Penny Stocks
And that brings us to the big opportunity for pot penny stocks: taking advantage of the hype.
As we near full legalization in the U.S. and Europe, the future of the marijuana industry is set to see massive expansion. Furthermore, all the money that private investors and institutional investors (like banks) were unable to pour in beforehand will form a deluge of cash once legalization sets in.
That initial excitement will lead to massive gains across the board for the sector. Long-term, it’s likely going to benefit the larger players in the pot industry, since they have a leg up on establishing dominant marijuana businesses in the newly-opened markets.
But in the short term, the rising tide will lift all boats. And in that instance, we’re going to see many pot stocks make tremendous gains in short amounts of time. No gains will be more significant than those made by marijuana penny stocks.
With an opportunity like that on the horizon—and considering how well early investors did in the Canadian marijuana market when a similar course took shape—this is a fantastic opportunity for investors.
Pot penny stocks are uniquely suited to see very strong growth in 2020 and beyond. With so much movement in the marijuana industry, we can expect to see pot stocks soar across the board as legalization spreads globally.
On top of that, companies that are newer and smaller will likely be the biggest beneficiaries of the massive rush.
Marijuana penny stocks, therefore, are among the most high-potential plays on the market right now.