How dangerous are marijuana stocks? Even a company with notable achievements has plunged

  • Written by MarketWatch
  • Published in Economics

As I’ve long said, some investors will make millions in marijuana, but many more will lose a lot of money.

When I wrote “How to potentially become a marijuana millionaire, albeit carefully[1],” the most important word in the headline was “carefully.” When I first started writing that investors with less experience think that all they have to do is buy a few marijuana stocks and they will become rich, there was a lot of criticism. Many could not fathom as to why I was saying that. Since then, I have published many more examples, and investors who were previously criticizing are now beginning to understand.

Read: The collapse of this cannabis stock offers a valuable lesson to every investor[2]

It takes skill, knowledge and the proper mindset to make money in marijuana stocks. Let us explore with another example that, on the surface, appears unbelievable because this is a story of perhaps the biggest marijuana-related achievement. Let’s explore with the help of a chart.


Please click here[3] for an annotated chart of GW Pharmaceuticals GWPH, +0.28%[4] Please note the following:

• GW Pharmaceuticals scored a first by getting FDA approval for a cannabis-based medicine.

• This medicine, epilepsy drug Epidiolex, has the potential to generate over $1 billion in sales by 2022. The drug is derived from cannabidiol (CBD). CBD has many medicinal properties that help a variety of conditions. The drug contains less than 0.1% tetrahydrocannabinol (THC). THC is what makes people high. The drug targets Lennox-Gastaut syndrome and Dravet syndrome. Over a period of time, GW Pharmaceuticals may get approval for additional conditions.

• The company also has a pipeline of other promising cannabis-based drugs.

• The chart shows the excitement among investors when another major achievement for marijuana happened. The Drug Enforcement Agency (DEA) classified Epidiolex as a Schedule V controlled substance. Schedule V is the lowest-ranked class. It was widely anticipated that the DEA would classify it as a Schedule I drug, the highest-ranked class. In plain English, the DEA moved this cannabis-derived drug to the lowest-risk category.

• Investors had a good reason to celebrate by buying.

• Analysts were uniformly bullish.

• Momo (momentum) crowd money flows were positive.

• Of special interest is that smart money flows were negative, as the momo crowd was aggressively buying on the news and investors were celebrating. As the chart shows, at that time, many questioned the smart money flows as the stock was making new highs and the news was great. Now we know that smart money flows were spot-on in being negative. With hindsight, that was the top, but we called it right...

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