Not since the dot-com mania of the mid- to late-90s and early 2000s have investors been this excited about a particular industry. I’m talking, of course, about the cannabis industry, which is expected to grow from a $9 billion market in 2017 to a $57 billion market by 2027, according to BDS Analytics.

But just as the dot-com era spawned super success stories like Amazon.com, Inc. (NASDAQ: AMZN) and eBay, Inc. (NASDAQ: EBAY), it also served up fantastic failures like theGlobe.com, a precursor to Facebook (NASDAQ:FB) that saw its stock soar a then-record 600% on its first day of trading before plummeting to under 10 cents per share a mere three years later.

There was also Pets.com, a pet food and supplies company famous for its sock puppet mascot that appeared in a 2000 Super Bowl ad. Pets.com socked it to investors that same year, folding in November.

So, can potential pot stock speculators learn anything from all of this? We believe they can.

 

The Early Amazon Indicator

Towards this end, I think it’s helpful to look at Amazon in its infancy. After all, if you had invested even $500 in AMZN stock when the company had its initial public offering on May 15, 1997, you’d be $460,103 richer today — so, it’s not a bad business to study.

Check out what Amazon said about its market in those early days:

The worldwide book industry is large, growing and relatively fragmented. According to Euromonitor, U.S. book sales were estimated to be approximately $26 billion in 1996 and are expected to grow to approximately $30 billion in 2000, while worldwide book sales were estimated at approximately $82 billion in 1996 and are expected to grow to approximately $90 billion in 2000.Amazon S-1 via TechCrunch

Does that sound familiar? (Oh, by the way, Amazon’s revenue in 2019 was $232.9 billion — nearly three times the entire projected market in 2000.)

It is Amazon’s stellar revenue growth that has been the key to the company’s ascension. TechCrunch notes that “in the quarter before its IPO, Amazon posted more revenue than it had in the preceding year.”

Amazon Pre-IPO Revenue

Source: techcrunch.com

Where do Pot Stocks Stack Up?

Focusing on revenue growth makes sense when assessing cannabis stocks as well, especially since the market is still not fully developed. Here is a graph of cannabis companies showing their last quarter-over-quarter revenue growth for the company’s two most recently reported quarters.

Quarter-Over-Quarter Revenue Growth of Canadian LPs

Source: Grizzle Estimates, *GMP Estimate

The results above show you the companies that are able to achieve high growth rates.

Aphria has shown the best growth over the last quarter, suggesting investors should look towards Q2-Q1 2019 growth for signs they can maintain their current rates.

In comparison, investors can see Hexo and Organigram (OGI) as the most consistent options, where they have managed to maintain the best growth rates after initially ramping their operations.

 

How to Augment the Comparison

Growth is only one component to valuing companies in a nascent industry. Unlike Amazon, who had a serious first-mover advantage, cannabis companies face stiff competition.

Investors have a number of high growth LPs to choose from. This means they must also take into consideration factors like growing costs, margins, production capacity and cash on hand when comparing different investment opportunities.

By augmenting the above data with the Cannabis Scorecard, investors can hone in on some great pot plays for 2019.