There are several key parameters an investor should consider when investing in the cannabis space, according to Entourage Effect Capital (EEC) Managing Director Codie Sanchez.
Most of the market is currently small- to mid-cap, and any cannabis stock could be a worthwhile investment — even if a person has minimal funds at their disposal — so long as a company is thoroughly vetted, she says.
As for penny stocks, Sanchez is not a fan.
Penny Stocks Are 'A Little Scary'
Sanchez discussed several potential lower-cost options and their viability, with much of the attention given to companies with established success in or around cannabis.
That said, she did not place any emphasis on the penny stock options.
"I like a lot of the bigger names," she says. "The penny stocks and the OTC [are] a little scary to me."
The award-winning analyst highlighted two companies EEC held stakes in: Green Thumb Industries Inc. GTBIF and Curaleaf Holdings Inc. CURLF.
Another EEC-involved brand, Terrascend Corp. TER, is a worthwhile stock. The board chair, Jason Wild, is the ideal executive to lead, she says, noting Wild's success in asset management and pharmaceuticals before entering cannabis.
There's also Harborside Inc. HBORF. The company's recent market movements are positive signs, she says, citing its recent $5 million investment in California brand Loudpack via a 15% secured convertible note.
As for a non-EEC portfolio company, there's Cresco Labs Inc. CRLBF, which — along with Green Thumb and Curaleaf — displays solid business fundamentals while pushing towards profitability, Sanchez explains.
Due Diligence The Heck Out Of Management Teams
Having seasoned management teams to handle nascent market volatility and other movements is vital, Sanchez says.
"You also have to make sure that you due diligence the heck out of the management team," she advises, since the future's best predictor is the past. "It doesn't always guarantee your outcome, of course, but it just gives you a better insight."
Investors would be wise to examine the length of time a company has been in the space, or if it has spent time parallel or ancillary markets.
"I want to be able to actually look at their historical engagements and see what they have been able to accomplish," Sanchez says. Investors with limited funds to work with should still consider the more established names despite their higher price per share, she adds.
ETFs aren't a no-go, but no portfolio has the primary holdings she's targeting. As such, Sanchez's focus remains on individual options.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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