Towards the end of last week, Warren Buffet released his highly anticipated annual letter to shareholders, outlining Berkshire Hathaway’s performance. In his letter, he also described his vision for the company in the coming years. With the cannabis industry at the center of attention for the market over the past year, we wondered if the tsar of investments would include a cannabis company in his portfolio.
Not in its current state
In his letter
, right at the top, Warren Buffet reminded investors of his primary goal to invest in companies that have “favorable and durable economic characteristics” and that he can purchase at “sensible prices.”
While the durability of a company’s economic characteristics is open to interpretation, we believe that a business must essentially demonstrate some years of stable operational history. This kind of history is clearly missing for cannabis stocks. High growth, coupled with high capital requirements, makes cannabis players vulnerable in their current stage.
The cannabis industry is in a nascent phase with most companies running negative earnings due to huge capital investments. Plus, the current valuations for cannabis stocks including Tilray (TLRY), Cronos Group (CRON), Aphria (APHA), and Canopy Growth (WEED) appear hard to justify sensible pricing. And, of course, cannabis still isn’t legal at a federal level in the United States, which makes investing in cannabis (HMMJ) a tricky situation for seasoned investors.
But these factors don’t mean everyone will avoid cannabis stocks. After all, Buffet appeared to regret
missing out on Amazon. In fact, in his letter, Buffet wrote that he will miss opportunities but is okay with this.