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Thanks to President Biden’s pledge to decriminalize marijuana and Democratic control of Congress, there is new opportunity for cannabis firms. Flora Growth is primed to take advantage, and the Colombia-based company filed for an initial public offering or IPO. Very soon, Flora’s equity units will go public but should you participate?
Flora has a short operating history, and most analysts find it impossible to provide an accurate valuation for the company. Learn more about the risks, and determine if you should buy Flora Growth IPO (FLGC) stock.
When is the Flora Growth IPO Date?
Flora Growth’s public offering is imminent. According to the IPO calendar, retail traders will have access to the company’s shares on March 31, 2021. The stock will trade in the Nasdaq exchange under the ticker symbol FLGC.
According to its filings with the Securities and Exchange Commission (SEC), Flora seeks to raise $15 million in its IPO. It will offer 3.33 million shares at a proposed price of $4.50. And stakeholders who intend to sell will distribute 1.3 million shares.
Flora Growth Financial History
One of the biggest concerns regarding the Flora Growth IPO is its lack of operating history. As stated on the company’s Form 1-SA filing with the SEC, “We are a pre-revenue company with a very limited operating history upon which to base an evaluation of our business and prospects. Our short operating history may hinder our ability to successfully meet our objectives and makes it difficult for potential investors to evaluate our business or prospective operations.”
You may find this problematic, as do multiple analysts. Without a track record of top-line sales, it’s difficult to classify FLGC stock as anything other than an aspirational investment.
Further, growing cannabis isn’t exactly rocket science. You might justify a pre-revenue tag for a technology firm but not necessarily for a cannabis enterprise.
Prior to the IPO, Flora Growth received at least $11 million from investors.
Flora Growth Potential
Because of the more favorable legal environment in the U.S., it’s possible that Flora Growth could succeed in raising significant funds from investors. According to the Pew Research Center, 2/3 of Americans support marijuana legalization. As you might expect, younger Americans back legalization with more vigor than older generations, and FLGC stock plays into a favorable demographic tailwind.
In addition, the pandemic may inspire more people to consider cannabis-based therapies. During this crisis, many Americans suffered from stress leading to sleep problems, according to U.C. Davis Health.
While only limited evidence exists regarding the therapeutic benefits of cannabis, consumers may be willing to try something natural versus products from a pharmaceutical lab.
Last on the list of bullish points supporting FLGC stock, cannabis opens a “green economy,” which features a robust supply chain of production, processing and retail distribution. And more conservative countries like Japan are slowly but surely rethinking their cannabis laws. Flora’s IPO could help support its international ambitions.
However, you must be extremely careful about gambling on pre-revenue companies. A huge challenge for Flora Growth is that Colombia’s cannabis export laws are very complicated. Plus, Reuters noted that competition in Latin America may heat up, presenting massive challenges for Flora’s operations.
How to Buy Flora Growth IPO (FLGC) Stock
Usually, retail investors of traditional IPOs arrive at a distinct disadvantage. Unless you are an institutional player or a sophisticated private investor, you likely won’t have access to buy shares at the initial offering price.
This leaves you competing with everyone else in the opening session. During the debut, it’s not uncommon to see what’s known as an IPO pop or a big move up from the initial offering price.
However, with FLGC stock, the nature of the underlying business is incredibly risky. Since it’s difficult to assign a valuation for a pre-revenue company, you may want to watch the early proceedings before making your decision to buy (or not).
Step 1: Pick a brokerage.
As a retail investor, the technical process of participating in an IPO is no different than acquiring blue-chip stocks. Once you know how to buy stocks, you simply apply the below steps to invest in FLGC stock.
First up is picking a brokerage. Due to the rise in interest among a new generation of investors, along with mobile trading apps that imposed competition on traditional brokerages, you now have a wide variety of choices. Most brokers today offer identical incentives, such as commission-free trading. Your decision will largely boil down to personal preference and anticipated growth.
For instance, if you’re constantly on-the-go, you may find that a trading app that you can conveniently download on your digital device is more than enough to meet your needs. But if you anticipate exploring advanced investing and trading tactics, you should consider full-spectrum platforms.
Below is a list of best brokers that may interest you.
Step 2: Decide how many shares you want.
To figure out how many shares you want, take a dollar figure that you’re comfortable putting at risk. This figure will depend on multiple factors, most importantly account size and risk tolerance. Still, because FLGC stock is speculative, you should invest an amount that you would be comfortable losing if the worst outcome happens.
Just as importantly, you should decide how many shares to purchase before stepping into the ring. On IPO day, FLGC stock could trade all over the map. Craft a game plan and stick to it to avoid placing emotional wagers.
Step 3: Choose your order type.
Beyond the share count you intend to purchase, you must familiarize yourself with key market concepts. One of the most critical is the order type, which accounts for the constantly fluctuating value of stocks.
- Bid: The bid is the highest price a buyer will offer for a stock. It is always lower than the ask.
- Ask: Conversely, the ask is the lowest price that a seller will accept. It is always higher than the bid.
- Spread: The spread is simply the difference between the bid and ask price. This concept is crucial for 2 reasons. First, the spread represents the profit margin for market makers, who absorb risk on their books as they acquire stocks for the end purpose of distribution to investors. Second, the spread is a de-facto indicator of market liquidity. Narrow spreads suggest lower risk and high liquidity. Wider spreads indicate higher risk and lower liquidity.
- Limit order: Limit orders are useful if you want transparency and control with your entry and exit points. They only execute at your predetermined price. But the drawback of this approach is that no guarantee exists that the target stock reaches said price, potentially leaving your limit order hanging unfulfilled.
- Market order: For a guarantee that an order will go through (assuming that you place it during normal session hours), you should choose a market order. This transaction type automatically fulfills at the next available price. The disadvantage is that market orders fulfill at rates least favorable to you — buy orders on the ask, sell on the bid.
- Stop-loss order: A protective function for a specific holding, a stop-loss order automatically exits you out of your position at either a predetermined price or the next available price. The main risk with stop-loss orders come from gap-down sessions, which are sessions that feature an opening price much lower than the prior session’s closing price.
- Stop-limit order: A stop-limit order only executes at a predetermined price, preventing the often nasty surprises associated with gap-down sessions. But the risk is that a stock has no guarantee that it will reach the predetermined price. Should a stock continue to tumble, you would have been better off having a stop-loss order cut your downside exposure.
Step 4: Execute your trade.
To execute your trade, follow these steps for a market order:
- Select action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the execute button.
Placing limit orders is identical to market orders, with the added step of specifying your desired execution price.
What order type to use for FLGC stock depends on how badly you want to own shares. Because IPO day may feature significant leaps in valuation, you should consider a market order if you’re bullish. Otherwise, use a limit order to precisely control your entry point.
High Risk with the Potential for High Reward
Due to shifting political tides and a young demographic that leans progressive on the issue of personal liberties, you can make the argument that Flora Growth is launching its IPO at an ideal time. And the international community is curiously eyeing the cannabis market.
Still, this does not exempt FLGC stock from potential volatility. Because Flora Growth is a pre-revenue entity, it has much to prove. Only pursue this IPO with funds you can afford to lose.
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