There is so much promise for the cannabis industry, but so much zigging and zagging in search of sustainable profitability.

From the minute that Joe Biden took the oath of office, a new leader perceived to be a cannabis industry supporter, the cannabis industry has seemed ripe for an investor explosion. There has been money on the sidelines waiting for this sort of green light. Now it’s signaling “go.”

Indeed, in the days and weeks leading up to the inauguration, there were clear signs that the cannabis industry was gearing up for a slew of good news to come from the new administration—inspired, in part, by vice presidential candidate Kamala Harris’s sponsoring of the Marijuana Opportunity Reinvestment and Expungement Act (MORE) that the Senate will be discussing soon.

That got the attention of WallStreetBets (WSB) in late January and early February, an investment forum on Reddit with 8.5 million followers doing commission-free trades on the Robinhood investment platform. They wanted to come and play investor squad.

They got into the cannabis stock mix after scaring Wall Street with their GameStop investment run a few weeks ago, where millions of small investors essentially beat Wall Street up, driving up the GameStop stock 1,700% from January 27-29 and pushing the company’s market value up from $2 billion to $24 billion in just a couple of days.

They did the same with AMC, running its stock price from $4.96 to $19.90 on January 27, before dumping stock to lower its price back to $8.63 the following day. AMC is now down to $5.61.

TD Ameritrade restricted trading on both GameStop and AMC stocks while they assessed what WSB was doing. And now the whole process is under investigation.

Congresswoman Maxine Waters (D-CA), chairwoman of the House Committee on Financial Services, announced a full committee hearing to be held on February 18, to include the Reddit and Robinhood CEOs.

WSB was just showing off, in reality, flipping off The Man in what The Economist called “swarm trading”, a new type of financial adventurism.

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WSB is basically a loose fraternity of 20 and 30-something tech geeks engaged in “inappropriate behavior” of humiliation and name-calling along with some serious investment advice, wrapped up in a certain delight at the disruptive influence its having over the suit-and-tie investment crowd, according to a study from the Georgia Institute of Technology. Cannabis was just another play day mess for the group.

WSB’s run at cannabis stocks looked promising at first. For example, WSB targeted Tilray in early February. Their stock shot up 148% immediately before crashing hard over the next few days. “Things had got too far ahead of themselves,” Korey Bauer, chief investment officer and portfolio manager of the Cannabis Growth Fund, said in a Market Watch report.

But the result has been a disaster for regular cannabis business investors, many of whom have been dancing around investing in the industry as it weathers the volatility over the last few years. They heard the new administration hype, they saw the WSB run, and they jumped in. But many did not jump out soon enough.

And they weren’t alone.

The WSB thing got a lot of amateur lookers hooked; their GameStop shenanigans had some investors making thousands of dollars from the stock practically overnight. Surely that same kind of thing would happen with cannabis, an industry poised for explosive growth because of a new administration, with more states legalizing it, and 68% of Americans now OK with legalized cannabis. Right?

Wrong. The New York Times called the WSB runs “dumb money.”

These WSB-inspired investors looking for a quick hit on cannabis stocks a la GameStop apparently forgot the quote from Harvard philosopher George Santayana: “Those who cannot remember the past are condemned to repeat it.”

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There is still some very necessary due diligence to do before investing into cannabis companies, swarm or not.

Remember Tilray? It was the first cannabis company to do an U.S. initial public offering on Nasdaq in July, 2018, raising $153 million. Its stock shot up initially to $214 a share in September, 2018, then crashed to below its $17 IPO price by December, 2019.

How about Canopy Growth? That’s a Canada-based cannabis business familiar to many first-time investors. The Bruce Linton-built behemoth looked like a leader in the industry, building huge grow facilities. The company lost $487 million in 2019. They booted Linton in July, 2019.

But the company reported a net loss of $829 million for the end of 2020 as a result of “impairment and restructuring charges,” according to its SEC filings. It’s expecting to make $150-$200 million in a “cost savings program” this year, and have a positive operating cash flow by 2024.

Its only redeeming quality is its continued partnership with beer and wine producer Constellation Brands that began in 2017, got bigger in May, 2020, and was reportedly the force behind Linton’s ouster.

Remember what happened at MedMen? The company has 25 dispensaries in six states, including 11 in California (and five more to come) that they claim are the “ultimate prize of the industry.” But in late 2018, it crashed and burned amid scandals of serious mismanagement and reports of millions of investor money being squandered by entitled, free-spending canna-bros in a dispute that was just settled in June, 2020. It’s been undergoing a rebuild, too, recently hiring a chief revenue officer who led huge revenue-generating efforts at Frederick’s of Hollywood. And there it is today, raising millions to “execute on our turnaround plan,” and experiencing a quick bump up in its stock price in mid-February.

And how about Aurora Cannabis Inc., another Canada-based early investor sweetheart? A quick look at the dizzying highs and gut-wrenching lows in its stock chart since April, 2019 shows its volatility.

Managing such a new company in a new industry comes with its own set of usual business challenges that nevertheless blindsided cannabis business managers who still have to deal with other business irregularities growing and selling an illegal drug (especially in the U.S.). For example, Aurora was hacked by a cybercriminal in December which it says could lead to more “substantial costs” to protect its current and future operation.”

Then there is the ongoing class action lawsuit begun in October 2, 2020 initiated by a group of New Jersey shareholders about false and misleading claims about the company, for which the company warns it can’t “reasonably estimate the possible losses or a range of possible losses resulting from the matters.”

The company’s SEC filing lists over 50 risk factors it has to inform its nearly 200 million shareholders about, including that the company has “a limited operating history and there is no assurance we will be able to achieve or maintain profitability.” That’s just the tip of the iceberg for Aurora’s troubles, as it turns out.

The list of questionable cannabis enterprises goes on and on, no matter how well established or well-branded the business is. High Times, one of the oldest cannabis brands that industry watchers thought would do well at the outset, has hemmed and hawed about the delay of its IPO, which they first announced in October, 2017.

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Now the company is trying to duck some of the SEC scrutiny about its 2019 filing, and is now hemming and hawing some more to their 30,000-plus shareholders that they are in a “pause” mode while pushing the new target date for its IPO into late March. Politico laid out the whole sordid tale of lawsuits, personal fallings out, and clouded future for High Times—another morality tale for the cannabis industry.

There is so much promise for the cannabis industry, but so much zigging and zagging in search of sustainable profitability. The industry is still dealing with operations and management issues all across the board, such as huge inequities in pay between management and hourly workers.

It seems like the cannabis industry just has not found its mojo.

And truly savvy investors are still taking a wait-and-see approach to what has been shown to be a multibillion business that will keep generating revenue. The cannabis industry is forecast to reach $46.8 billion worldwide, even without federal legalization in the U.S.

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Meanwhile, the stock market is trying to figure out if the WSB swarm trading episode is a new thing for cannabis business investors to keep an eye on—other stocks have jumped in the wake of the GameStop episode, some based on social media rumors—or just a passing fad that resembles “gambling more than investing”, according to the Georgia Institute of Technology study.

What’s next? Nobody seems to know for sure. But if cannabis gets legalized through efforts of the U.S. Senate, it’s off to the races for real. And chances are, the WSB swarm will be right there in the mix again.

“Fun is a good thing, but only when it spoils nothing better” – George Santayana, in The Sense of Beauty.