Alan Brochstein, founder of the 420 Investor, stopped by PreMarket Prep on Thursday to talk about the state of the marijuana industry as several states ramp up to vote on legalizing the drug next month.
November will be a critical turning point for the drug, as supporters have fought for decades to achieve some of the progress we're beginning to see materialize. Brochstein says we're in the middle of the second marijuana boom.
"The first boom was something like I've never seen in my life and I don't expect to ever see again," Brochstein told PreMarket Prep. "It was just a feeding frenzy when Colorado opened their doors in January 2014. The market started to take off around December 11."
The State Of Marijuana After Legalization
After Colorado blazed the trail, marijuana stocks increased 15 fold from December 2013 to March 2014.
"What happened at the time is there weren't that many stocks, and a lot of people flooded the market. They didn't really understand the fundamentals, but they knew something was happening and they just bought stocks. it was a momentum trade," he added.
Brochstein had been telling his subscribers there was going to be an uptick headed into the election last time around. Since Colorado legalized weed, there were only around 20 cannabis stocks; Now, there are nearly 400 on the market.
Marijuana Bubble Coming?
"A lot of people coming into the market were brand new coming into the sector, today there are a lot of bag holders from a couple years ago, so there's some overhead supply from more companies and stocks that were bought in 2014 that have basically ridden down to zero," added Brochstein.
One thing is certain: Investors overwhelming prefer stocks that have some sort of cannabis reference in their name. Brochstein currently covers 24 names in the industry. Although there is a lot of excitement surrounding the future of marijuana, he added a word of caution.
"For people coming into the market now, I've been warning my subscribers to be very careful. We're kind of late stage here. I've been sharing some insight about how far it'll go and how long it'll last, and I'll just warn everybody, not a lot. But I think it still has further to go...It's a bubble," concluded Brochstein.
PreMarket Prep is a daily trading ideas show that focuses on technical analysis and actionable short term trades. You can listen to the show live every morning from 8-9 a.m. ET here, or catch the podcast here.
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