What Canna Stock to Buy Next- Using Market Cap as an Indicator
This is the biggest question on my mind lately. The Canna sector has been on a decline since April and is now starting to rebound. The market cap of many companies have declined and I want to take advantage.
There are now 56 licensed producers listed on the Health Canada Website.
Seems like every month there is a new company doing an IPO. I recently bought into DOJA, but still have some cash on hand. How can I pick out a winner.
Using Market Cap as in indicator
There are a few things to consider when choosing a canna stock. The current size/market cap of a company can be a reason to buy or not buy. This is also important if you fell that a company is undervalued and should have a market cap similar to another producer. Most of the canna stocks market caps are affected by the planned future growth and not the current revenue.
Small Market Cap Companies
Do you want to go with a high risk, maybe high reward stock, which could also end in you losing it all. These would be the licensed producers that are in the application stage with a grow facility even built yet. They might be retro fitting a building or in the process of setting one up.
These companies are trading with valuations of 10-20 million market cap. Doja is at around 35 million.
What’s the benefit of these stocks you ask. Well if one of these stocks were to grow to the size of Canopy Growth, it would mean making 100x your investment. $1000 to $100,000.
But with the high reward comes the high risk. These small startup companies could easily run out of money, Aurora bought a company from Quebec that went bankrupt trying to get their license. Also these small growers will take a year to get up and running, by that time the big market players will have a strangle hold on the market. They now have to compete with companies that have been at it much longer and have already scaled up.
Medium Size Companies
If you want a little safer investment, going with an already established mid size company would work. I’m talking about the Organigrams, Cronos Group, Supreme and Abcanns of the industry.
Most of these companies are trading around 100-300 million market cap. So if they were to grow to the size of Canopy Growth, that is still a 5-10x return on investment.
When I’m looking to make a purchase I try to buy companies that are expanding internationally. This will give them access to much larger markets than just Canada. Abcann Global has been one of my favorites lately. They have a market cap of 100 million, they grow about 2x the amount of canna in the same square footage as other producers.
I have been considering putting the rest of my money in companies like Aurora, Aphria or Canopy. These are the some of the largest companies by market cap. But that also means it takes a lot more to double their value. Canopy growth is currently worth 1.5 billion so they have to add another 1.5 billion in value. Opposed to the mid size companies that could double by adding 100 million in value.
The amount of money to be made may be less, but the chances are probably higher/safer that you would make money on these stocks. They have the funds to continue growth and most are expanding internationally.
Just one of the factors
The market cap of the companies is just one of the factors that can help sway an investor into buying. Many other things can be taken into account such as leadership, future growth plans, past performance on plans, current profits/revenues. All of these items can also affect the market cap, if investors really believe int he company it can inflate the market cap. Two companies with the same revenue can have vastly different market caps. This could lead you to believe one of them is undervalued, hopefully you are right.
This is just another challenge to invest, deciding which companies are mostly likely give you the largest return. Without risking the loss of your money while your at it.