Cannabis Investors: Why Now May Be a Good Time to Play With the House’s Money

Here’s a safer way to benefit from roaring cannabis stocks such as Canopy Growth Corp. (TSX:WEED) in the new year.

| More on:
The Motley Fool

To say 2017 was a great year for pot stocks would be a vast understatement. Many Canadian cannabis producers more than tripled this year, and as we enter the year marijuana will become legalized across Canada, I think pot stocks still have plenty of room to run, despite concerns over what some believe is a speculative cannabis bubble which may pop before the big day.

Canopy Growth Corp. (TSX:WEED), Aurora Cannabis Inc. (TSX:ACB), Aphria Inc. (TSX:APH), and MedReLeaf Corp. (TSX:LEAF) could certainly clock in another year of triple-digit percentage returns, but it’s important to remember that such incredibly volatile, high-risk stocks could violently correct in the event of an unforeseen negative development.

Sure, cannabis stocks had an incredible year, but the general public is already starting to forget that the sentiment was quite bleak earlier in the year, especially during the spring, when all pot stocks experienced a pullback between 30% and 50%, paving the way for a volume dry-up in summer. After the euphoric highs were reached, a nasty hangover followed.

If you took a contrarian position after the fallout and became greedy while the general public was fearful, you could easily have quadrupled up over the course of just a few months. It’s anybody’s guess as to whether history will repeat itself in the new year, but if it did end up happening again, you might want to have ample cash on the sidelines to take advantage of such an opportunity, assuming the correction isn’t triggered by news that’s detrimental to the industry.

Now that we’re on the other side of the spectrum, should you be fearful while others are greedy?

Not exactly, but it certainly wouldn’t hurt to exercise caution after the recent exponential increase in the average cannabis stock. It never hurts to take a profit off the table, and if you’ve already doubled, tripled, or quadrupled up this year, you may want to take your original bet off the table and play with the house’s money. You’d still profit a great deal from a further run-up in cannabis stocks, and you wouldn’t lose your original investment should another correction present its ugly face.

Bottom line

It’s easy to become overly euphoric and greedy with high-flying stocks, especially with the tremendous momentum experienced of late. It goes against human psychology to think like a contrarian, but if you manage to, you can protect your portfolio from a downfall and profit off those who are overly greedy.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Investing

think thought consider
Tech Stocks

Is CGI Stock a Buy Even With No Dividend Yield?

CGI stock may not have a dividend to speak of. But does that necessarily mean you should ignore this top…

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

Why Now Is the Time to Invest in Canadian AI Stocks

Are you looking for one of the most solid Canadian AI stocks out there? This one is probably your best…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Read more »

stock research, analyze data
Bank Stocks

Canadian Bank Stocks: Buy, Sell, or Hold?

There are opportunities and risks on the horizon for the Canadian banks.

Read more »

Young Boy with Jet Pack Dreams of Flying
Stock Market

Is Air Canada Stock a Good Buy After Its Q3 Results

Down almost 60% from all-time highs, Air Canada is an undervalued TSX stock that remains an enticing investment in November…

Read more »

cloud computing
Investing

Where to Invest $10,000 in November

Given their solid underlying businesses and healthy growth prospects, I expect these two defensive stocks to outperform uncertain outlook.

Read more »

coins jump into piggy bank
Retirement

Here’s the Average RRSP Balance at Age 44 for Canadians

Holding stocks like Alimentation Couche-Tard (TSX:ATD) in an RRSP is a good way to build your wealth.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »