Once upon a time, we were bullish on cannabis stocks.
We saw the statistics that young folks like to smoke/eat/ingest marijuana as much as they like to drink. We saw the political dominoes falling, one-by-one, with country after country legalizing pot. We connected the dots, and believed that we were entering a new world where young folks would buy a lot of legal marijuana over the next few years.
In fact, we believed this trend was going to create a $50+ BILLION global cannabis industry, and that out of that industry would emerge the marijuana-equivalent of Constellation Brands (NYSE:STZ), Molson Coors (NYSE:TAP), and Anheuser-Busch (NYSE:BUD) – all alcoholic beverage giants worth a combined $150 billion.
But that time has passed. Now, we’re no longer bullish on cannabis stocks. In fact, instead of buying cannabis stocks, we think you should eliminate all exposure to the marijuana industry right now.
Because, while cannabis consumption trends remain strong and the legal backdrop continues to grow more supportive, the overwhelming majority of data today suggests that marijuana companies aren’t ever going to make huge profits.
You see, our initial bull thesis didn’t just hinge on the cannabis industry getting really big (it will), but it also hinged on the idea that companies like Canopy Growth (NYSE:CGC) were going to be able to build big consumer brands in the cannabis industry and competitively monetize those brands at strong profit margins.
But recent trends imply that won’t happen.
All of these cannabis giants just reported earnings. And while they all broadly reported healthy topline results, most of them also reported widening losses despite bigger revenues. The implication? They’re spending to grow, and they’re earning negative ROI on that spend.
Why is this the case? Because the cannabis industry is entirely commoditized.
As it turns out, pot is pot. Sure, there’s a difference in quality and strain. But your average consumer cannot tell that difference, and even if they can, most don’t care. Those who can tell the difference and care represent a small segment of the population, and they already often have loyalty to a home-grown brand or their dealer down the street. They don’t have loyalty to a Canopy Growth or Aurora Cannabis brand.
In the absence of meaningful product differentiation and brand loyalty, these cannabis companies are having to rely on price and distribution to drive competitive advantages.
That’s a losing ball game – because you get into price wars where everyone loses, and spending on distribution only works until your competitor also scores the same distribution deals, in which case everything reverts to a lose-lose price war.
And that, in a nutshell, is why we’re bearish on cannabis stocks.
We were hopeful these companies were going to be able to turn supercharged demand for legal pot into huge revenues and profits. But, as each quarter passes and these companies lose more and more money, it has become clear that they won’t.
Marijuana companies will forever struggle to make profits, and therefore, cannabis stocks will forever struggle to make you money.
Interestingly enough, though, our bearishness on cannabis stocks has made us doubly bullish on psychedelics stocks.
I know. Everyone likes to think of psychedelic stocks – the companies making new, psychedelic-inspired treatments for mental health disorders – as the second coming of cannabis stocks. But that couldn’t be more false.
In reality, early-stage psychedelic companies – like us – recognized the shortcomings of their cannabis peers, and have done everything to make sure they don’t fall into the same money-losing hole as cannabis companies.
Primarily, they’ve developed competitive moats.
Whereas the cannabis industry is centered around making recreational pot accessible to everyone – which opens the door up to commoditization – the psychedelics industry is about making specialized medicines accessible to a small segment of the population.
These medicines have to be developed, and the science behind them is quite rigorous, meaning development is a huge barrier-to-entry. On top of that, they have to go through rigorous FDA trials – another huge barrier-to-entry. They have to pass those trials – another huge barrier-to-entry. And they have to win mass doctor approval – yet another huge barrier-to-entry.
In other words, while the cannabis industry has essentially no barriers to entry, the psychedelics industry is comprised of nothing but barriers to entry.
Beyond that, psychedelics-inspired treatment isn’t just about the medication. It’s about the delivery of the medication. During treatment, patients need to be in controlled environments. They need to feel comfortable when taking the medication. They need to be safe. When not on the medication, they require therapy and counseling to optimize the medication’s effectiveness.
It’s a whole process.
And guess what psychedelic companies are doing? They’re trying to patent their whole process, meaning that at scale, psychedelic companies will have competitive moats not just around their medications, but around the delivery of those medications, too.
Folks – the Shroom Boom is nothing like the Pot Boom. The latter is the archetype of commoditization. The former is the quintessence of building competitive advantages.
Which is why pot stocks are a horrible investment, but psychedelic stocks are a fantastic investment.
So, if you have any pot stocks in your portfolio, drop ‘em. Forget about ‘em. And take that money and go all-in with psychedelic stocks.
But, alas, here’s the million-dollar question: What are the best psychedelic stocks to buy today?
To answer that, let’s turn to our flagship investment research advisory, Innovation Investor.
In Innovation Investor, we’ve been following the psychedelics industry for a while now. We’ve been through all the clinical trial results. We’ve dug through all the companies in the industry. We’ve talked to insiders and experts.
And, though it all, we’ve arrived at the conclusion that there is one shroom stock that everyone should buy right now – before it soars to the moon.
To get the name, ticker symbol, and key business details of that tiny company – and to access dozens of other hypergrowth tech stock picks right now – click here.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.