Do not sell. You may think you can’t afford to come up with any more money to buy on, but don’t panic sell your stocks. The cannabis industry is a risky industry to get into but the opportunities are there. It’s like one minute you think you already know what’s going on the next you don’t, it’s challenging. There’s a lot of different things that are happening that are hard to explain. What’s happening in the cannabis stock world right now? Tony Frischknecht discusses where it is right now, earnings before interest tax depreciation, and the challenges we could expect to face. Tune into this episode and hear the good news on legalization and cannabis stocks. Embrace the big wins that are to follow in your journey!
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Why You Shouldn’t Panic Sell Your Cannabis Stocks And Why It Might be A Good Time To Buy
Cannabis is a crazy thing. It’s like one minute you think you know what’s going on. The next, you don’t. It’s challenging. There are lots of different things that are happening that are hard to explain. What I want to do is spend a little bit of time with you and talk about some cannabis stocks. What’s happening in the cannabis stock world? Why are they all dropping?
I wouldn’t say all of them, but a majority of them are dropping, and it’s painful. Nobody likes to lose money, but it happens. This is a part of the game we play. Cannabis stocks are risky. If you are in cannabis stocks or looking to get into some investing in these types of stock portfolios, be prepared. You’re going to see some big swings. That’s what we’re seeing.
Why is this happening? It’s a strange thing because we had such robust COVID earnings throughout all of 2020. We had a lot of people stuck at home. There were a lot of states that were deeming cannabis essential. You had the liquor stores and cannabis stores that were profiting very well. You’ve also had some incredible performances through the last few months. There are stocks out there that have been performing for years. We’re seeing that stock drop. What is happening?
One thing we saw at the beginning of 2021 was Chuck Schumer came out. We were talking about legalization as a country, and everything started taking off. This was fantastic. I saw it. Then they started tapping the brakes, and nothing ever transpired from these discussions. However, we did get some major wins. If you have read some of our past episodes, we got New York. They’re pushing forward towards adult use, Mississippi. We had some states down South that were passing this. We had South Dakota. We had all these big wins. Things in momentum were pushing forward and then are not.
As a cannabis investor, legalization is where you see stocks explode. That is all slowed down, and those talks haven’t been happening. You’re getting some people that are leery, people that are not willing to wait. I will mention this again for those of you that haven’t heard me too many times before, but this is not a get rich quick. It’s not a get rich quick in stocks, growing plants, and selling them. None of that is. It’s the furthest from the truth.
I try to set people up to understand that, “To make your money in this industry, you need to be looking at 7 to 10 years.” I know that’s a lot to swallow. The patients that it takes to wait that long is extremely hard. Also, if you’re only barely scraping by, that’s what makes it challenging, but stocks and cannabis stocks are no different. Everybody wants to jump in right at the time when it pops. That’s the dream. It happens rarely, but it does happen.
I want to share a couple of things with you. Aside from understanding why these aren’t going up, we’ve got this thing that’s called EBITDA. That’s Earnings Before Interest, Taxes, Depreciation, and Amortization. This is what they are providing most of the shareholders. There’s a lot of stuff in between that EBITDA. You hear it said a lot. The reason why it’s used so much in cannabis is because if you put all those things in line, use all those and then show the bottom line, it would scare people. Much so that they’d be like, “Why the hell would I ever invest in this?” The biggest one is taxes.Success doesn’t just happen. You have to work for it and it takes time. Click To Tweet
Everybody is hoping to see legalization because it’s going to change that tax structure. It’s back to 280. That is what is hamstringing these companies from making a profit. That’s why it’s such a long play because we don’t quite know when legalization is coming. Everybody has their ideas and thoughts of when it could be, but that’s the biggest thing. When people started talking about legalization, their eyes got big. They started investing, and then they’re not because there’s been no momentum pushing this forward. That’s why they use EBITDA a lot of the time. It’s because it makes the companies look better to the outside investor and to the investors that are on the inside too. They realize this. If they don’t realize it, they need to go study up on what that is. When I say what that is, it’s 280.
There are some simple things that you can do. One, what does your stock portfolio look like? What companies do you have in it? You need to go back and look on at least the most recent quarter and see what the numbers look like and where their growth is happening. I don’t know how many stocks you have. I try to keep it under somewhere between 3 and 5 maybe, but I also like to focus my efforts on my favorite one. Check out the last 1 to 2 quarters of each one of your companies. See where they’re at.
Number two, decide which company you think is in the best position for growth. This is going to be relative to your knowledge to what you know. I work off of not just sales, but margins are a big one that people forget about all the time. What are their margins? You’re seeing good companies somewhere between 30% and 45%. Maybe 50% is getting on the higher end. It’s hard to hit that number.
If you get somewhere between 30% and 35% of margins, you’re doing very well. A lot of companies are barely breaking that twenty mark. I look for that. I also look for some of the sales for these larger MSLs on what’s your wholesale, how much wholesale are they pushing out on a quarterly basis, and watch that growth because that will tell you what kind of production they’re doing, whether their new grows are coming online or if they’re falling behind. These are some of the things that you can tell without reading between the lines.
The third one is probably the hardest one. I struggle with it. I have to mentally prepare myself for this. It’s buying when the stock drops. It’s so much easier said than done. I did this. I’m finding some extra cash through some different areas. I’m designating it for small portions. When you do this, you want to be careful. You don’t buy all at once because you could continually see a drop over hours, hopefully over days, where you can pick up a little chunk at a time. You want to spread that out.
For example, you’re at $10 in a day. It could be $9. In another day, it could be at $8 and so on. If you’ve got a couple of thousand dollars that you’re going to designate for purchasing on these drops to pick up more of this great company, you want to make sure you spread that out over time because it’s tough to catch it as it drops. That’s why if you drop it slowly, you’ll only lose a little bit each day, and then when it regains back, then you’re going to pick it up much quicker.
This is a tough one. I talk with my friends about this all the time. We joke about it, “I’ll buy on the dip.” Everybody says that but very few people do it because it takes a mindset where you are saying, “I know I’m going to lose money.” That’s probably one of the mental problems that come with it. “I know if I’m buying this at $9, tomorrow it could be $8.” That means I’m going to lose $1. Nobody wants to buy into that. However, what you will end up seeing is once we see this momentum start to churn in and pick up, you’re going to rebound that extra book overnight. You’ll be like, “I shot up $3.”Don’t dwell on the money that you’re losing. Cannabis is a long play. Click To Tweet
All of a sudden, because you bought when everybody else was selling, you’re going to reap the rewards. This is something that takes some time to learn, but once you do it once or twice, you start to get used to it. That uncomfortability of losing a little bit of money for bigger gains later starts in printing. You’re like, “This is normally how it’s done.”
I know how hard it is to do this. Whenever you’re investing, always make sure you’re not putting more in than you can afford to lose. You can lose it or wait for a while. This money could be sitting in here for the next 2, 3 or 4 years but with the momentum that we have in recreational and medical, I don’t see it taking that long to turn around. Buying on the low side and picking up more because you know the value is there. That’s where it goes back to understanding your portfolio and who the best one in there is.
You’re going to get a lot of people out there that will tell you, “Buy a little bit of each.” That is the approach of so many investors. We’ve been taught, and you hear it all the time. “Spread your risk.” However, that’s not how the big winds come in. They take focus effort on one company or industry and watch it like a Hawk all the way through. That’s where you see the big ones. If you want to see a little bit of growth, diversity is your gain but if you want to see these big wins, you want to focus on 1 or 2 companies that you believe in. It’s a mental game.
The fourth and final thing I want to tell you is do not sell. If you can’t afford to come up with any more money to buy on the small end, do not sell. The best thing to do is forget about it. Take the app off that shows you what’s happening every day, every hour or every second. Put it to the side and don’t think about it for the next couple of months. It’s not going to make you feel good. You don’t want to think about all the money that you’re losing. This is a long play.
The good news is I honestly believe once we see some upticks towards legalization, you’re going to see all cannabis stocks. It’s that old saying, “High tide raises all boats.” You’re going to see that happen. Even if you are in a rough company, you’re not sure what’s going to happen and you’ve lost 30%, 40% of your money, hold on. Hang out for those times. When you know that, “This is not a long-term company,” that’s when you cash out and make at least to breakeven.
Hopefully, you make some money. People do this to create value and build their stock portfolio, but they all are not winners. I hope you have picked a few winners. If you have some stocks that you would like to talk about, I would love to have a discussion with you or even send me a question. You can reach out to me at PlantProblem.com. Ask me a question there. You can send me a text. I have multiple ways to get in touch with me right there. You can always reach out to me on my social media too.
Thank you so much for reading. I hope you got something out of this episode that you can use because that’s the goal. These are different things that I use all the time. It’s fun to talk with you about this, but it’s also fun to get some great conversation going. Let’s get a conversation going about this, understand some of these different players and what they’re doing. I’d love to discuss that with you. Reach out to me at PlantProblem.com. I will see you soon. Thanks so much for reading.
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