CANNAINVESTOR Magazine October / November 2016 - Page 25

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The dot.com era was a product of the new economy. The Internet was gaining wider acceptance with greater commercial participation and more home users wanting to be a part of the world wide web. The internet had created a new and untapped market as consumers and businesses in one place could easily buy products/services sold in another place – often across State lines or even internationally. IPOs of internet companies started to appear in greater and greater frequency with valuations seemingly based only on an idea and the share prices increased dramatically. This excitement over the new economy meant that almost any credible idea attracted investment dollars because investors wanted in on day 1. The fundamentals of investment strategy were substituted by a simple paradigm: Internet companies depended on rapid expansion of its current customer base (and building excess capacity for future growth) and this would often translate into losses. Amazon is an excellent example of a successful company where this paradigm in fact proved to be true. The era was also alleged to have its fair share of dishonest business owners scamming investors.

The period from March 2000 to October 2002 demonstrated that actual fundamentals of investment theory would prevail for the overwhelming number of companies. The warning signs were there much sooner. In 1996, Alan Greenspan described the pursuit of tech stocks as ‘irrational exuberance’ (www.businessinsider.com) and that term was made famous when it was used as the title of a book, written by Yale University Professor Robert Shill, that predicted the total collapse of the dot.com “bubble”.

That is a very oversimplified summary of what gave a self fulfilling sense of legitimacy to valuations (and therefore share prices) for companies that otherwise failed all financial principles of valuation, and that, in turn, contributed to the dot.com bubble bursting.

SIMILARITIES TO THE DOT.COM ERA

Much like those who continue to falsely state that there is a correlation between vaccinations and the onset of Autism, there is always a grain of truth. In 1998, Dr. Andrew Wakefield published a study (referred to as the “Lancelot Study”) claiming to have found a connection between vaccinations and the onset of Autism. Subsequently, there was a global reduction in vaccinations and consequently a rise in preventable diseases that needlessly persists to this day despite the fact that any connection between vaccinations and the onset of Autism having been proven completely untrue. The Lancelot Study was withdrawn in 2010 shrouded with allegations that key facts were altered to show a link between vaccines and the onset of Autism. But that grain of truth (the study itself) continues to be cited as evidence despite its full and complete debunking and the internet remains filled with stories of conspiracies and cover ups. View “Penn and Teller on vaccinations” (yes, that Penn and Teller!) for the most succinct summary possible. Why look at this aspect of vaccines when discussing investing in the legal cannabis industry? As more medical studies with respect to cannabis are published, it also serves as a good reminder that medical studies can and have been altered at the source to show the desired outcome. It is also analogous to the doomsday predictions some have with respect to investing in legal cannabis companies because there is always a grain of truth. How does false information affect stock prices? How many times have you seen on stock forums and boards some irrelevant dated reference (or perhaps even untrue statements) used as “fact” to discredit the company, its business plan, and its executive(s)? How many IIROC trade halts have there been originating from false rumours?