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Pot stocks are not winning any brownie points

There are numerous cannabis-related stocks listed on the ASX. At this stage it’s hard to say if or when any of the underlying businesses will become successful or not.

However, they are businesses just like any other listed on the ASX. The key thing that sustainably drives shares prices up is revenue growth and profit growth.

I wrote an article a month ago warning how the pot stock share prices had gotten way out of hand considering how early in the process of establishing medicinal cannabis is in Australia.

Since that article:

Auscann Group Holdings Ltd (ASX: AC8) is down 25%

Creso Pharma Ltd (ASX: CPH) is down 30%

MGC Pharmaceuticals Ltd (ASX: MXC) is down 17%

MMJ Phytotech Ltd (ASX: MMJ) is down 39%

Zelda Therapeutics Ltd (ASX: ZLD) is down 36%

I hope that the cannabis businesses do make a success of themselves, but investors have to be cautious about the price they pay for the earnings growth they are expecting. Otherwise, it is pure speculation which isn’t a very good investment strategy and is just as likely to lose you a lot of capital.

I’d much rather invest in small speculative caps like National Veterinary Care Ltd (ASX: NVL), Fastbrick Robotics Ltd (ASX: FBR), Pureprofile Ltd (ASX: PPL) and SKY and Space Global Ltd (ASX: SAS) for long-term growth stories that could grow into large businesses.

Foolish takeaway

Pot stocks may yet recover and make some investors a quick buck. Personally, they don’t appeal to me because their valuations are still high, they have no competitive advantage and they aren’t making profits or paying dividends.

Instead, I’d rather get my investing highs from quality growth stocks like these three.

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Motley Fool contributor Tristan Harrison owns shares of NATVETCARE FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.