Now that the stigma of investing in the cannabis industry has worn off, experts are predicting a flood of capital coming into the sector, particularly among MSOs in the US, according to Barron’s.

“Over the long term if you pick the right horses in the sector, there’s still quite a lot of growth to be had,” said Canaccord Genuity equity research analyst Matt Bottomley, who shared three pieces of advice for how to vet opportunities in the market.

Risky business

Anyone investing in cannabis should be comfortable with volatility, which isn’t always tied to market success or failure, but to M&A, policy changes and headline-grabbing investments. Bottomley advises that if you find a 2% or 3% move unpalatable, you steer clear of weed stocks.

Why? Because despite sometimes gut-wrenching swings, those who play the long-game (and get in early enough) will reap the rewards.

What’s in a valuation?

While the market tends to move in the same directions, Bottomley says it’s crucial to look at the competition and the market a particular company can reach. Some Canadian companies, for example, are trading at “30 or 40 times” their EBITDA, but have not yet implemented an inroad strategy south of the border. Instead, he says to look for lower trade multiples that are exposed to markets with growth potential.

Look closely at who is steering the ship

After touring multiple facilities and meeting management, Bottomley says executive teams are even more important in cannabis than other industries. Look for companies that aren’t overly aggressive in M&A, focus on core markets and pay a fair price for acquisitions — classic signs of poor management.

Thanks Matt!