Medical marijuana has been given the green light by the government, and what seems like, investors too. In the past few months, it has been legal in Australia to cultivate, manufacture and import medicinal cannabis and many people are trying to cash in on the crop. This has seen money pouring in with eye watering results. The most recent and notorious example is a company called Stem Cell United [ASX:SCU], a $3million company specializing in Chinese medicine plant extraction. Earlier in March, this stock was trading at 1 cent per share. In intraday trading on 15th March, it hit $1.08. That’s no joke! Have a look at SCU’s historical price data. But why? On 14th March, the company had announced it had hired a man dubbed the ‘King of Cannabis’ as an advisor.
‘Stemcell United Limited is pleased to announce the appointment of Medicinal Cannabis expert Mr. Nevil Schoenmakers as a Strategic Advisor to the Board to assist the Company assess opportunities in the medicinal cannabis sector.’
Yes, that’s the announcement that sent this stock up over 8,000% in a couple of days. The possibility they will get into the medical marijuana market. Make note; this company has nothing to do with this sector yet. A minerals explorer Queensland Bauxite [ASX:QBL] is also getting in on the act, acquiring interests in Medical Cannabis Limited. I have no idea what bauxite and cannabis have in common, but QBL’s share price tripled after the announcement. Most of the companies entering into this industry don’t have profits or revenues as such. Hence, the drivers of the share price volumes are day traders, speculators and people following social media and announcements made by these companies that tend to exaggerate their potential.
In a similar way to technology in the 1990s, the cannabis market could easily be a ‘big thing,’ however it remains to be seen whether these existing share players actually generate any profits on the back of it. When the tech bubble burst, it truly destroyed ‘mum and dad’ investors. Although the medical cannabis market does have some similarities to a bubble more research is needed before such a conclusion can be made. However, if you want to make money from this sector, do your research and invest in the companies that you understand well or risk your investment going up in smoke.
***Currently, as at 3rd May 2017, Stem Cell United is trading at $0.16.
DISCLAIMER: As always, the information contained here is for general information purposes only. It is not intended to be and does not constitute financial or any other advice.