It seems that anyone who invests in marijuana stocks these days has a fundamental reason why they’re backing a particular horse in what’s become the world’s biggest stakes race.
Those big on Tilray (NASDAQ:TLRY) and Tilray stock like the fact that the company generates nearly half of its revenue from cannabis oils, which has higher margins than the dried marijuana flower. That’s 50% more than Canopy Growth (NYSE:CGC), putting it on a faster runway to overall profitability.
If you’re young (with 40-50 years of work ahead of you) and taking a flyer on Canada’s largest marijuana company by market cap — go ahead and roll the dice.
However, if you’re over 50, you’re probably making a mistake buying marijuana stocks at this point in your life. Unless you can afford to lose the money you bet on Tilray stock or one of the other players, you’re best to give this burgeoning sector a pass.
“I am not saying that people can’t still have some fun money, and maybe invest [2%] of a portfolio in something speculative, but we won’t proactively do that with our clients’ money,” said Toronto CFP Ted Rechtshaffen recently. “We don’t need to, and they don’t need to, and there is a real possibility that the marijuana story won’t end well for investors.
“When the world is full of investments backed by positive cash flow, dividends and relative stability, why risk your retirement on anything else?”
The 2% Club
Now, if you do have a little fun money put aside from the main portion of your retirement portfolio and you believe Tilray stock is the horse that will end up in the winner’s circle, I think it still makes sense to hedge your bet by betting on some of the other big players as well.
While it’s been a long time since I’ve bet on a horse race, I used to figure out the two or three horses most likely to win the race and box them in various bets. You don’t win as much as a straight bet, but you have a better chance of winning something, so you don’t walk away empty-handed.
In June, I recommended that investors interested in playing the marijuana game buy marijuana ETFs until the industry matures to the point where there are companies you can evaluate based on traditional financial metrics like earnings and cash flow.
At the time, I suggested investors put 50% of their bet on the AdvisorShares VICE ETF (NASDAQ:ACT) because it has a small cannabis component of 19%, while also investing in some different hospitality-based businesses.
ACT and MJ are up 8.1% and 26.4%, respectively, in the four months since; TLRY stock is up 676% since its July 19 IPO, when it was priced at $17.
If you bought IPO shares, I hope you had the good sense to sell and wait for corrections like the one that happened in September when it dropped from over $200 to under $100 in a few short days.
Bottom Line on Tilray Stock
The last time I wrote about Tilray, I suggested investors keen on its stock, might consider Constellation Brands (NYSE:STZ) instead because you could benefit from marijuana legalization without worrying about the potential ban on Canadian marijuana workers entering the U.S.
While I like STZ long term, if you want to play the marijuana game, I think MJ makes even more sense than when I first recommended it back in June.
You won’t get rich, mind you, but it’s the smarter way to play the future.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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