Basics to Know Before Investing in Marijuana Stocks
A decade ago, people wouldn’t have thought about investing in anything related to marijuana. Today, however, the tides have turned. With multiple states legalizing the use of medical cannabis and recreational cannabis, people have found great potential in the industry.
With more companies being set up every now and then, the industry is turning into a wide landscape waiting to be dug. The overall acceptance of cannabis as a flourishing industry and newly set cannabis companies have led to an influx of new investors trying to earn some hard cash.
While 2022 comes with a lot of promise for cannabis investors, the industry is still subjected to some regulations. Since cannabis has not been legalized at a federal level, the industry is expected to stay volatile for the next couple of years. However, this estimation is not without growth. The industry is actually projected to reach $84 billion by 2028, at a CAGR of 14.3%.
Keeping these stats in mind, it’s safe to say that cannabis is an extremely inviting venture for investors at the moment.
However, before you jump onto the bandwagon, there are a few things you should know beforehand.
7 Basic Things to Consider Before Investing in Marijuana Stocks
Let’s discuss 7 things you should know or consider before you invest in marijuana stocks.
Understand the Types of Marijuana Products
Marijuana business deals in two broad categories, namely, medical marijuana and recreational marijuana.
Medical marijuana has been legalized in multiple U.S. states, (somewhere around 35) while it has also been accepted globally in 30 countries (or more). This is the type of cannabis that requires a recommendation card or a medical card online from licensed physicians and isn’t recommended to just anyone. While every state has its own criterias of recommending cannabis, most states suggest its use to help patients manage their symptoms of anxiety, depression, chronic pain, sleep disorders etc.
On the other hand, recreational marijuana does not require any such recommendations and neither can be used to help manage symptoms better. These products can be easily found at an online CBD store or retail outlet. Since it doesn’t add to any medical benefits, only 19 U.S. states ( & Washington D.C.) have legalized marijuana.
Understand the Different Types of Marijuana Companies
The type of marijuana businesses can be understood better with these 3 categories.
To begin with, we have the growers and retailers. These companies are responsible for the cultivation and harvest of cannabis (whether indoors or outdoors) while the retail part deals with the distribution of cannabis across customers.
Then we have the biotechnology companies that extract different cannabinoids and compounds from the cannabis plant and use it to make other pharma drugs.
The last type helps the cultivation and distribution process without actually being involved. The ancillary product and service providers support the cannabis industry by providing the right lighting, tents, packaging material, and more.
Realize the Risks of Investing in the Marijuana Industry
We’ve said it before and we’ll say it again. The marijuana industry is too new and unventured to be without substantial risks. By risk, we simply mean just how volatile the market can be.
Since marijuana is still not completely legal across the United States, it has imposed great financial restrictions over any institute responsible for providing financial services to marijuana brands. Even though the industry is getting a lot of support from political leaders, the support or resulting benefits are not promised.
At the same time, there can be an imbalance between the supply and demand of marijuana across the states. Not every state allows cultivation of the plant that requires more production in other states, which can then be delivered to non-cultivating states.
While more and more companies are entering the scene, not all ventures have proven to be beneficial. Multiple companies are barely making it through their financial constraints and the business is concentrated with a handful of businesses.
Know What to Look for in a Marijuana Stock
When you’ve made up your mind about getting involved in the industry and making some money, you might as well do some homework.
It’s crucial to research about the company, and their management. Their growth strategies, and competitive position along with their financial assets, everything requires scrutiny.
Evaluate Marijuana Stocks and Exchange – Traded Funds (ETFs)
Find best performing cannabis stocks. Companies like Curalef Holdings, Canopy Growth Corporation (CGC) Green Thumb Industries and a handful of others are leading the game right now.
Instead of individual stocks, you can opt for cannabis related exchange traded funds. Even in this case, your investment isn’t without risk and we recommend only investing a small portion of your investments into the cannabis business.
These refer to collective investment of multiple investors pooled in to buy multiple stocks.
Invest in Marijuana Stock of Your Choice
This business is nobody’s safety net. It’s volatile and definitely not suitable for conservative investors. When you want to invest in marijuana company, ask yourself these questions –
- Are you ready to tolerate high risk?
- Are you ready to add a marijuana company to your portfolio?
Even if you are, it’s smart to remember that investing too much in a single marijuana stock or ETF. Investing in this industry requires you to go low and slow, and see how the stocks perform before you can make a greater investment.
If you’re trying to look for a company that sells marijuana products but has considerably less risk, invest in those who earn their revenue from both the marijuana industry and from outside.
Monitor Changes in the Marijuana Industry
The laws of the industry are changing. Some states are legalizing cannabis others are still reserved. As an investor, your job is to closely monitor all these changes taking place in the country.
Unlike other, more safer and lower risk investments, we recommend taking a short term view when buying marijuana stocks. You’re unaware of how the laws might turn out a few months from now so don’t gamble more than you can handle.
Bottom Line: Basics to Know Before Investing in Marijuana Stocks
The cannabis industry is growing at a phenomenal rate but it’s still too young to be stable. While investing in cannabis stocks can be the best possible move for you, following words of caution is recommended.
Basics to Know Before Investing in Marijuana Stocks
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