Not so long ago, Wall Street believed that marijuana offered a massive growth opportunity, giving any company related to the space a huge valuation. AFC Gamma (NASDAQ: AFCG) was one name that tried to capitalize. The catch is that AFC Gamma is a mortgage real estate investment trust (REIT), so it was positioned as a pick-and-shovel company, not a grower. The opportunity management once saw has clearly disappeared. What can you learn from this situation?

Investors are generally rational over long periods of time while they're prone to being irrational over shorter periods. This is why you see frequent periods in which new investment opportunities, like marijuana, get afforded huge premiums. Essentially, Wall Street is trying to get in on the cheap in the "early" days but ends up pushing things to extreme levels that are unsupportable. It's pretty common, with the end result normally being a shakeout in which weak players get bought out or shut down, leaving the strongest names as the survivors. In the heady days of excess, it's usually pretty hard to pick the long-term winners from the losers.

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Source Fool.com