The development of new technologies or significant societal change often comes with a boom or bust cycle. As these new technologies or ways of doing things gain in popularity, the public and investors may rush in to get involved and get a piece of the action. As people storm into stocks, start businesses or get involved in other ways, the bubble is blown up until it eventually bursts.
The marijuana industry is going through the early phases of this cycle now. If it is not able to innovate, it could become the next major bubble to pop. The industry can, however, avoid being the next boom and then bust by favoring innovation. A simple change of approach can save companies and investors from financial downfall.
The Dot-Com Bubble
One of the greatest bubbles ever blown was the dot-com bubble of the late 1990s and early 2000s. The internet was a new technology with a tremendous promise that opened doors for millions of companies and investors. Entrepreneurs opened businesses rapidly while investors poured into internet stocks without thinking twice. The problem, however, became that many of these companies were not adding real value. The stock market and corporate valuations eventually became so bloated with amateurs that prices started to fall. After a wave of panic selling in stocks, the bust led to a complete economic crash.
Of course, the crash did not mean that the internet and its businesses had no value. Many companies came out of the market crash just fine. Big companies like Google and Amazon are still thriving today. These companies made innovation their goal, and they focused on delivering value rather than cashing in on a short-term trend.
Marijuana Fever
The cannabis industry is in the early stages of bubble territory as enthusiasm for the industry swells. Numerous nations, such as Canada and The Netherlands, have already made it legal. In the United States, marijuana legalization is lagging a bit but is spreading. The legalization of medical cannabis in many states appears to be paving the way for recreational use as well. Soon, adults of legal age may be able to buy marijuana just as they do tobacco.
Public perception is also changing. Cannabis has become more widely accepted by the public for the numerous potential benefits it may provide. These benefits include its positive effects on anxiety, PTSD, chronic pain and even epilepsy.
As public perception shifts, speculators and businesses are looking for ways to capitalize on the market. Venture capital has found its way into the marketplace, and producers are already starting to build brands. Investors are hungry for weed stocks as they see it as the next big opportunity.
Similar to the dot-com bubble, there are some major issues with this. With thousands of companies looking to get in on the action, they must find a way to stand out and add value rather than just riding the wave. If not, they are not going to last long. Second, investors have already begun pouring into these stocks and will eventually push prices higher than can be justified. Once this happens, the market could become ripe for a major sell-off just as was seen with internet stocks.
Innovation and Value
Jumping on the mary jane bandwagon just for the sake of getting involved is a lousy idea. This will not only hurt individual investors but will also harm the economy as a whole. Although the marijuana industry may lack the firepower of the internet industry, it could become a massive market. If the market gets too crowded too fast, however, it could potentially lead to the next major bubble bursting and a major economic downturn.
To avoid another dot-com scenario, companies must focus on innovation. Several new technologies including data analytics improved rosin production, and compliant vending machines are already in the works. These new technologies may open the door to fresh opportunities and demographics. The companies producing these technologies will be the most likely to remain big, long-term players as the industry evolves.
Don’t get too caught up in the hype. Focus on opportunities and stocks that can deliver ongoing value. The long-term success of the industry depends on it.
[…] Written by: James Ableman – Tech Geeked […]