To keep in line with the potato metaphor: contrary to popular belief there is no hash in hash browns. So cannabis investors need not worry about hash browns. But Twitter hashtags provide a plurality of advice about which pot stocks to buy.
Although growing marijuana is relatively easy if someone has access to an Internet search engine. Pot growers are prolific posters: anyone can find reams of information about growing Cannabis. But the industrialization of marijuana is laden with pitfalls that need to be addressed to turn grow ups into ten-baggers.
But how can someone assess the plethora of investment opportunities emerging through IPOs and reverse mergers for producers, distributors or suppliers to the Cannabis industry? Here are some investment criteria that will prevent phantom pains for monies gone to smoke after the head highs and the munchies have disappeared.
1. Think sturdy distribution network
The medical marijuana business is not about growing pot: it is about selling products. Market shares will become a problem as emerging producers elbow each other for market access. Those who can emulate or tap into the Pharma distribution network improve odds of success. After all it takes years and millions of dollars to create distribution channels. The biofuel industry has been plagued by this problem for years: recreating a parallel distribution network to go around the petroleum industry while struggling with margins that are meagre at best. Cannabis margins are better but why squandering them away reinventing the wheel?
2. Look for evidence of quality control
Look for evidence that management is taking microbial contamination seriously. Quality control is the pachyderm in the room. For example, aflatoxins are toxic and are among the most carcinogenic substances known. They are produced by Aspergillus flavus and Aspergillus parasiticus, species of fungi and have been reported to grow on Cannabis. Marijuana appears not to yield large quantities of these mycotoxins but sufficient levels are present to be a potential health hazard for both the user and the workers who are in daily contact with buds. Careful processing, storage, and sanitation procedures should be maintained with Marijuana. It’s not rocket science, but it is a critical. One could even argue that quality control is a compelling reason to legalize marijuana to prevent the distribution of contaminated material.
3. Seek evidence that greenhouse processes have been adapted to marijuana
Catastrophic crop failure is the stuff of nightmares. People who grow cucumbers in football field-sized greenhouses do not know how to grow marijuana. I witnessed discussions between a greenhouse expert and a marijuana expert. Both were extremely competent but they only agreed that they agreed to disagree. The biggest technical challenge to marijuana growers is to scale up a cottage industry. Fertilization regimes for cucumber will not work for marijuana. Phytosanitary problems creep up because of excessive air moisture in industrial systems. Investors should fear the recurrence of the Irish Potato Famine, a period of mass starvation, disease and emigration between 1845 and 1852. During the famine nearly a million people died and a million more emigrated from Ireland, causing almost a quarter of the island nation to perish or emigrate. The proximate cause of famine was a potato disease commonly known as potato blight, which was caused by excessive rainfall. There is a real possibility that mismanaged marijuana operations will face their own blights. My sense is that those able to master growth conditions to keep steady outputs from one batch to the next will dominate the industry.
4. Embrace disruptive innovation
There are a million ways to innovate in the marijuana sector, ranging from growing plants faster, breeding cancer strains, or new delivery systems. Patients with lung cancer, or children with autism need better delivery systems of cannabinoids, a problem, which emphasizes the need for innovation. I think the lowest hanging fruit is the ability to maximize bud growth per square foot with the same capital cost. In a competitive environment, innovation that is workable should attract takeover bids.