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3 Mistakes To Avoid When Investing In Marijuana And Cannabis

Investing In Marijuana Looks Good, But Avoid These Mistakes

Posted by Oaktree on Saturday Apr 23, 2016
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3 Mistakes to Avoid When Investing in Marijuana and Cannabis

 

 

 

As the age of ganjapreneurs and marijuana millionaires dawns on the world, there will be pure golden ideas out there that make investors a ton of money, but there will also be a bunch of fools’ gold as well.  What makes a marijuana or cannabis idea look good? What things should you look for when trying to find a good investment opportunity in marijuana?

 

You may be familar with our first article about the best reasons to invest in marajuana, or our second article, five things to know before you invest in a marajuana or cannabis company.   Both are excellent reads if you are thinking of investing in the medical marajuana niche. 

After months of looking at companies, going to trade shows, and reviewing products, here are a few tips, or mistakes, to avoid when investing in the new “Golden Age of Marijuana”.

 

1.  Just because you put a pot leaf, or pot leaf logo, in front of an idea, doesn’t make it a good idea.  In the same vein, just because the company has the word “Canna” in their name, doesn’t mean it is going to be an automatic hit.  Bad ideas are everywhere in the world, not just the burgeoning cannabis niche.  There were bad ideas in the adult space when it bloomed, there were bad ideas in online casino space, the currency trading space, and in almost all tech spaces today.  Just because you put a pot leaf picture in front of the idea, doesn’t make it a good idea.  As one famous politician once quipped about lipstick on a pig, so too does a marijuana leaf added on to a logo.

 

          

 

Do your due diligence on any investment idea or company you are thinking about investing with or in for this space.  Being a “Lean Start Up” devotee, I would first ask the question, “Is there demand for this product?”Check Google Trends or Google Keyword Research.

The second question I would ask is, “Who are the competitors and what is their advantage over said company?”.  Does      someone make a better product, have better marketing, or have a bigger war chest than the company you are thinking about  investing with?

In essence, due your normal due diligence on the idea before you invest and just because you see a pot leaf in the logo or the word “Canna” in the name, doesn’t mean it is a good investment.

 

2.  Worst Spot To Be Right Now In This Niche – Growers.  Wait, what?  How can growing actual marijuana be a bad place to be for the biggest investment tidal wave of our lifetime? 

 

          

 

You may have heard the expression; the world is awash with oil. Hence the price of oil has dropped from $150 a barrel, to close to $25 at one point.  This is due to more oil coming online in the world market from previously banned countries and because of the US fracking revolution that has made the US a net EXPORTER of oil in less than 6 years.  There is so much oil in the world, we are running out of places to store it.Hence, we have margin compression and too much supply for demand.

 

Now, the same thing is happening in the marijuana industry.The world is about to be awash with cannabis and marijuana.  Every  country, town, farm, city, closet, extra bedroom, rooftop, and state has started to grow weed.  Factory farming weed grows are massive, the size of 5 indoor football fields, all growing acres and acres of weed.  The average price for an ounce of pot has collapsed over the past 4 years from over $2,000 an ounce for great weed, to less than $200 an ounce now.  This trend will only continue as more and more countries like Mexico, Canada, and US allow for more official grow facilities.

 

That does not include the millions of people who have started to grow pot as a way to capitalize on the “Marijuana Land Rush” going on.  Have you seen WeedEdiquette, the TV show on Viceland?  I highly recommend it.You will see a recent episode where a  hydroponics store gave away free marijuana seeds in the hopes of getting people to buy their hydroponic materials at the same store. Guess how many people showed up?  Over 1,000 people showed up and got free packs of seed to start growing at home, and this was just a one-time event in Washington, DC.  These small grows can be done in closets, extra bedrooms, basements, and just about anywhere.  Think of the millions of small growers around the world who have started to grow weed as a hobby.  Guess what happens to all the weed once the owner has their first ounce or two?Yep, the rest is going to get sold to friends and friends of friends.

Why is growing weed so popular?  It is cheap, has a low barrier to entry, and is almost impossible to stop or catch, if the cops even  cared.  The online growing groups on the Google Network and The Weed Blog are the most dedicated, hardcore groups online.  Why?  Everyone wants to learn how to grow weed for an easy side business.

Remember, you can’t have it both ways on the price collapse of marijuana and the margin compression that comes to that.  If you cheer the headlines and Tweets that say “Drug Cartels Losing Money On Weed, Farmers Stop Growing It”, you also can’t feel bad about the headlines and stories about the small weed farmer getting driven out of business due to factory weed growing.  Price compression hits everyone the same in a free market, the cartels and the small weed farmer in California or Washington.

 

3.  Don’t start a website unless you plan on selling vaporizers.   Unless you have one of the 4 Godfather domains in the word (Marijuana.com/net or Cannabis.com/net) be very careful on your website idea.  Don’t start a social network without one of those URLs.  Don’t start a mapping service without one of those URLs.  Why?  You can’t buy traffic in this niche with traditional sources like Facebook, Google, or Twitter.  Marijuana stocks and stock sites are growing in traffic right now as everyone wants to know what to invest in right now.

 

           

 

This means you have to buy traffic at niche spots like Mantis Network, The Weed Blog, and other weed based sites.  The problem with this traffic is that you are competing with vaporizer affiliate offers, and offer cash prodcuts that convert for sales.  Unless you are selling something with high margins, you are going to get killed buying traffic say, for the sake of just getting your site traffic numbers up.

 

What does that all mean?  Traffic in the niche runs about 5 CPM or cost per thousand impressions.Current click pricing on the Mantis network of sites is between $0.90 to $1.20 a click.  A $1.00 a click to a site when you aren’t selling anything will make you broke very quickly.  Did you ever notice why 90% of the ads you see on any type of marijuana site is for a vaporizer?  That is because a vaporizer is the only product with high enough margins and prices to justify paying $1.00 a click for online.Remember, if you pay for traffic you have to monetize it somehow.  If you pay $1.00 a click for 10 clicks ($10), and you sell one vaporizer which pays you $25.00 in commission, that is a model that works.  That is called affiliate marketing.  You will even notice all the ads on Snoops’ sites are mostly vaporizers or legal services.  The only two areas that can pay the $1.00 click model and make money.

It is very risky getting into a niche that you can’t buy traffic from Google or Facebook.  If you do decide to go that route, you better have a great URL and/or a great SEO (search engine optimization) team so you can get traffic to your site. 

 

4. So Mr. Know It All, what should I do I if I want to get into the niche?   Great question, and we run Cannabis.net so we can build our traffic organically.  The areas that interest me beyond websites are edibles and extracts.  Both areas are the future of B2C in this niche.  Edibles are powerful, discreet, preferred by women, and have a ton of room to grow.  Extracts are growing the fastest out there with medical research as well as recreational use.  Once you have the extract, which is like a syrup, you can do anything up to a million things with it (when legal), and that is when long tail search terms and creative ideas will make some people millionaires.  Will it be a gum?  A drink?  A salad dressing?  Now the arena opens up into white labeling and search traffic.

 

Will there be winners in the packaging game?  Yes.  Will there be some winners in the “best lighting system” or “best grow fertilizer” game?  Yes.  I have no idea who those companies will be because I don’t know what competitive advantage each onehas over the other.  Who has better marketing?  Who has a bigger bank account to spend and advertise? 

 

Those questions are very important when looking to invest in a marijuana company or any regular company.In the end, there will be investor gold out there but also a ton of fool’s gold in this “Marijuana Land Rush”.  Just because you see the word “Canna” in the company title or you see the pot leaf as part of the logo doesn’t mean you should rush in with an open check book.

 

What is your best cannabusiness idea and have you invested in any?  Leave a comment below.

 

 

 

 

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