Quick—name the first cannabis industry unicorn.
If you said Canopy Growth, or GW Pharmaceuticals, or a marijuana company currently in business, you’ve forgotten the amazing rise and fall of Medbox.
The first publicly traded “cannabis company” to exceed $1 billion in value (at least on the exchanges, “real” enough by our rational market’s standards) way back in 2012, Medbox wasn’t a company at all so much as it was a stock-selling scheme as the Securities and Exchange Commission discovered, a hustle that took advantage of irrational hype cycles to bamboozle ill-informed retail investors.
Hmm. Does this sound at all familiar, in early 2021? It’s worth revisiting the Medbox story in the context of the still-ongoing GameStop stock Armageddon, since it’s happening at the same time marijuana legalization, in part inspired by the COVID-19 economic disaster, is having its biggest-yet moment.
NEW YORK, USA – JANUARY 28: A group of demonstrators are gathered by the New York Stock Exchange … [+]
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With near-unprecedented attention on the stock market inspiring even antimaterialists to research “naked shorts” and ponder downloading the Robinhood app, retail investors with positions in cannabis companies ought to remember that absurd valuations, triggered by hype cycles, have a longer history than r/wallstreetbets.
And while weed companies creating billion-dollar value out of absolutely nothing may not happen again—that’s what the SEC is for—irrational hype cycles are part of the landscape in cannabis investing. And this is without a flood of Reddit posters pumping companies.
Nationwide legalization is coming in Mexico. Both the US Congress and heavily populated East Coast states are pondering cannabis reform. Billions of dollars of cannabis were sold last year! Jay Z has a weed brand!
There won’t be “another Medbox” in weed, given how far the industry has come in the past decade, but analysts have predicted exaggerated inflations, followed by damaging corrections. And we’ve already seen this happen since President Joseph R. Biden, Jr. was elected in November.
What does Joe Biden as president mean for cannabis businesses? Well, nothing, really. Biden didn’t promise to legalize marijuana while campaigning. Biden has not said a word about reforming the Controlled Substances Act. But Biden is a Democrat, and there are a lot of Democrats who are pro-marijuana—and Biden’s nominee for attorney general, Merrick Garland, is unlikely to pull a Jeff Sessions and use his position to start bullying weed companies.
And so the market responded. Cannabis stocks jumped in November, and then jumped again in early January, after Raphael Warnock and Jon Ossoff won Democratic control of the US Senate. There were big gains in cannabis, including companies based in Canada. What do Canadian companies, that aren’t involved in the US market, have to do with Joe Biden and Jon Ossoff?
Nothing, but since investors “know” cannabis legalization is coming, and since that means cannabis is a “good investment,” investors go out and buy some of the only cannabis securities available to them.
This trend suggests that r/wallstreetbets or another online forum could easily target a cannabis company as a buy target and inflate its value,…
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