Investors are always looking for the next big thing to invest in. In 2017, cryptocurrency was all the rage. But in 2019, cannabis became the new golden goose for investors. With more and more countries legalizing marijuana and consumers becoming aware of the myriad of benefits the plant offers, investing in the industry seemed like a sure bet. Things haven’t changed to date.
As researchers get to work to prove that cannabis may be the future of natural medicine and more products are developed, Investment opportunities are endless. However, if you’re a smart investor, you know that there is always an element of risk in any investment. So, what risk will you be taking by investing in this industry? Let’s find out.
There’s No Guarantee of Success
When you look at companies like Get Kush Dispensary Canada, you probably get proof of concept and validation that the idea to venture into cannabis is a good idea. However, most businessmen and investors already in this industry will tell you that they had no guarantee of succeeding when they started.
You see, because the industry is still relatively new, prospects of future probabilities remain heavily in the loop. Most companies build their business around estimates of future sales and distribution, although these factors regulations are still being established.
The Regulations Around Cannabis are Shaky
Although numerous states have already legalized the sale of cannabis products, the law is not clear about where and how these products should be sold. For instance, there are numerous restrictions on stores that are allowed to sell these products. Besides, companies in the industry have to deal with restrictions in marketing their products.
Such restrictions make it hard for potential clients to gain awareness of the products or where to find them. As a result, you’ll find that you’re going above and beyond to get your products to the market but still not getting what you expect in terms of numbers.
The fact that the laws on cannabis products are always changing isn’t comforting either. When you think you’ve found your sweet spot and you’re gaining traction, a new law may pull the rug right from under you. These uncertainties have made many people shy away from investing in the cannabis industry.
As with any other business, there’s an element of risk when you’re a beginner in the cannabis sector. You’re entering into an industry with players who’ve already made their mark and gained consumer loyalty. Besides, other investors know the ins and outs of the business and understand how to navigate the challenges.
If you’re ill-prepared, sudden hits to your business can easily lead to closure shortly after you’ve begun. Fortunately, this is a risk you can handle by doing your due diligence. Learn everything you can about the business before investing your hard-earned money.
Preparation may not guarantee success, but it will help you know how to deal with challenges and outsmart your competitors. Besides, learning the business and market allows you to figure out what competitive edge you can introduce in the industry to stand out.
Due to the extreme uncertainties in the recreational and medical cannabis markets, the price movements of public traded companies in this industry are expected to be above average. And because there isn’t a feasible recreational market, projecting the future performance of these companies is an arduous task.
As a result, most companies in this space base their projections on assumptions — another reason why investors shy away from this industry,
Less Profit, Hefty Taxes
As a general of thumb, business people in the cannabis sector lower their prices than the black market. It’s an intelligent way to get their target market’s attention. However, the hefty taxes and fees imposed by the government don’t make running cannabis businesses any easier. You’ll find that by reducing price margins, the companies are already losing a lot in profit and what remains goes into paying heavy taxes.
This scenario puts a lot of pressure on small-scale cannabis businesses. Some cannot survive with what’s left of their profits because they still have to manage day-to-day operations. As an investor, you should look at a company’s income statements before taking the leap to get an idea of company profitability and the ability to survive in the long term.
The cannabis industry is, without a doubt, one of the most lucrative industries to invest in at the moment, especially as more and more states legalize marijuana. However, there’s plenty of risks involved because it’s a new industry. Therefore, research and do your due diligence before biting more than you can chew.