Investors in the weed sector are crossing their fingers for the next legislation victory, yet they don’t realize legalization will actually negatively impact valuation in the long term. Each time a bill is proposed, there is a speculative pump that tricks these investors into having hope. The reality is there is no hope in this sector.
As weed gets legalized, these huge corporations see an increase in demand, more opportunities to sell, and an overall mindset shift toward the product. The reality is simple, as marijuana gets legalized, there will be significant increased competition. These bloated corporations will gain market share, but they will also lose more to get it, while also having significantly higher costs than a local small shop.
There is nearly no path to consistent profitability that will justify the valuation of these bloated corporations.
The only chance for increased valuation is actually through regulation. If the medical marijuana market becomes more selective on suppliers, or if there is a huge cultural shift to allow marijuana products inside of bars and clubs, then there could be a path to success for the companies willing to pivot to take advantage. This is such a longshot that no savvy investor can hold waiting for it.
The reality is these companies will continue to dilute the shareholders in order to keep the company afloat until their time runs out.