Reader Mail: Reefer Madness and Financial Windfalls
My recent article on how to invest in “canna-business” generated a lot of reader emails. The discussion of marijuana always captivates people, made all the more compelling when you add the topic of money.
Here are a few notable questions, with my answers, about investing in pot stocks:
“I enjoyed your Investing Daily article on pot stocks. I have made some money in tobacco stocks but I do not smoke. When my father died of lung cancer I did some soul searching on my tobacco investments, but concluded that my investment is in the business aspect and I am not forcing anyone to buy the product.
And so, I look to pot stocks in similar fashion. Living in Colorado, I have seen use skyrocket. But home production is so easy I don’t know why any business is required at all. Apparently I am wrong on that last point, so I welcomed your article.
My question to you is about two stocks: CANN and CBIS. Would you be so kind as to share any opinions you have on these two securities?” — Kelsey A.
General Cannabis (OTC: CANN) and Cannabis Science (OTC: CBIS) are very small companies, with market caps of $48 million and $153 million, respectively.
General Cannabis occupies the agricultural and infrastructure aspects of the marijuana industry. The company engages in the acquisition and leasing of cultivation space to licensed marijuana growers and dispensary owners. The company also provides security services to licensed cannabis cultivators and retail shops. As such, this company provides the “picks and shovels” to the industry, which is always an appealing niche for investors.
CANN shares have jumped 366.85% over the past year and an eye-popping 2,690.91% over the past five years. However, the company consistently loses money. In the most recent quarter, CANN reported a net loss of $14.45 million on revenue of $810,000, for diluted earnings per share (EPS) of $-0.93, compared to EPS of $-0.12 posted during the same period in 2015.
Cannabis Science develops and markets cannabinoid-based drug treatments for autism, blood pressure, cancer and cancer side effects, as well as for other illnesses.
CBIS shares have risen 371.43% over the past year and 14.31% over the past five years. As with CANN, the earnings picture for CBIS is grim and doesn’t support the investor optimism. In the most recent quarter, CBIS reported a net loss of $6.96 million on no revenue.
The upshot: Both stocks are overbought and poised for a tumble. Stay away.
“I read your pot stock article. Got any insight on VBIO?” — Karen J.
With a market cap of $41 million, Vitality Biopharma (OTC: VBIO) develops cannabinoids for the treatment of neurological and inflammatory disorders, such as inflammatory bowel disease and multiple sclerosis. Since the stock started trading in August 2016, it has risen 346.87%.
With proprietary and innovative drug treatments that already show promise, VBIO could emerge as a biotech leader in the marijuana industry. But at this stage, it’s still too risky. As I indicated in my original pot stock story, stick with large-cap canna-business leader GW Pharmaceuticals (NSDQ: GWPH).
Six Tips to Avoid Squandering a Financial Windfall
This recent reader letter is breathless: “I just got a six-figure inheritance! How should I handle it?” — Donna F.
Financial windfalls come in many forms: inheritance, bonus, legal settlement… or maybe you just won the lottery. When you receive a financial windfall, you need to decide what to do with the money.
Even experienced investors can get confused about how to handle newfound riches. Lottery winners often provide the starkest examples of poor financial management. Over the years, the newspaper tabloids have reported with relish the real-life stories of rags-to-riches-to-rags.
Here’s some advice to help you keep a cool head before the fresh dough burns a hole in your pocket and you go broke:
1) Pay off your credit cards! Now!
Seems obvious, right? Unfortunately, getting rid of high-interest debt often is an individual’s last choice with a windfall. Instead, they start ogling shiny new cars in the dealer showroom. Reducing the balance on your Visa, MasterCard and Discover card to zero should be your No. 1 priority. Also pay off any consumer loans.
Avoid the common trap of paying off credit cards and consumer loans only to run-up fresh balances. It’s a vicious circle that will empty your pockets.
2) Seek a temporary safe haven in short-term investments.
After you’ve eliminated credit card and other high-interest debt, park what’s left in a safe haven. Don’t feel pressured to immediately put the money into riskier investments. Take your time.
Gauge the latest investment advice of Investing Daily’s team of experts and methodically invest your cash hoard into the recommendations that make the most sense for you.
Put your windfall into a Certificate of Deposit (CD) or Treasury bill. Before you make a specific decision among the three alternatives, compare interest rates and term lengths so that you can get the biggest bang for you buck over a time period you’re comfortable with.
If you’re looking for a CD, be sure to shop around. Compare products from local banks and credit unions, which compete to offer the most attractive CDs. Also check with your broker and do some homework on the Internet, where you can easily find lists of high-yielding CDs.
As for Treasury bills, here’s a tip that many people don’t know: You can save money by acquiring T-bills directly at no cost from the U.S. Treasury, thereby circumventing intermediaries such as a brokerage firm or bank that would charge you a fee. Visit www.savingsbonds.gov for more information and application forms for actually buying T-bills online.
3) Maximize your retirement plan contributions.
If you haven’t been able to invest fully every year into your Individual Retirement Account (IRA) or 401(k) plan, now is your opportunity to do so. It’s important for your long-term financial health that you invest in your future security (while you simultaneously enjoy tax deferrals and savings).
4) Pay down your mortgage.
Consider making extra payments against your home mortgage, which would greatly enhance your retirement situation. If you have a home equity loan, consider paying it down — or paying it off. Regardless, a sure route to bankruptcy is buying a second home that you can’t afford.
5) Make sensible home improvements.
Consider applying some of the money to long-deferred fixes and improvements to your home. However, be sure to make the right kind of home improvements. Not all building projects reap an investment return; homeowners tend to subscribe to many myths about how to increase their home value. Consult a contractor.
6) Buy yourself a toy!
Yes, you read it right: If you’ve followed all of the steps above and you still have some money leftover, splurge and treat yourself to something nice (within reason). Maybe you need a new suit, flatscreen TV or stereo speakers.
A wise investor is a happy investor. You’ll make better decisions in the future if you’re able to enjoy at least some of your money today. You want to be prudent, not Puritanical. But whatever you do with the money, just don’t spend it like a drunken sailor. It’s a mistake that even seasoned investors can make.
Got a question or story to tell? Send me an email: email@example.com. In the meantime, have a great holiday. — John Persinos