Investing In Cannabis Stocks

Investing in Cannabis Stocks

Cannabis-related transactions no longer need to take place in the shadows. The legalization of marijuana has enabled those involved to operate their businesses openly. Experts believe that the industry, already an economic powerhouse, could triple in size within a few years. Some believe the industry could even become large enough to help boost a sagging national economy. The growth potential has drawn the interest of many people who want to know how they can invest in the promising cannabis market.

Where to Start

Investors should thoroughly research the cannabis industry before they decide. An understanding of the varied businesses involved enables people to make targeted investments. People can place focus on the areas where they believe the most growth could occur. The cannabis industry includes growers, distributors, and retailers. Unique to the cannabis market is also the division between recreational sales and medicinal sales. Other investment considerations could include companies focused on hemp products, CBD sales, and more. Expansion may even occur in marketing agencies that represent clients involved in cannabis-related businesses.

Many ways exist to invest in the industry. People may want to fund new local dispensaries, invest in the expansion of a growing venture, or buy seeds and become a grower. Those that want a more remote approach, however, should use the stock market. Publicly traded businesses include marijuana growers, biotech firms, and other businesses related to the industry.

An investment in marijuana stocks could also eventually include retailers that plan to expand or develop franchises or other companies tangentially related to the industry. Examples of these businesses include those that sell grow lights, offer specialized fertilizer or even retailers or designers of cannabis-themed merchandise.

Who to Trust

The profit-and-loss statements of publicly-traded cannabis companies are available to anyone that wants to learn more. Like any stock market investment, there are always risks, so everyone should stay updated on the performance of the companies they choose. Details to watch for include items like upcoming IPOs or companies that plan to merge or buy out other businesses. Learn about changes in cannabis company leadership and the quality of each new season of crops.

New investors can rely on brokers or investment experts to learn what they need to know before committing their money to any industry. Many financial websites now track the performance of cannabis-related companies as they would any other stock interest. The Internet enables investors to have constantly updated tickers that show the minute-by-minute values of the stock of any cannabis company traded on NASDAQ and the NYSE (New York Stock Exchange).

 

What to Avoid

The popularity of the cannabis industry can make it seem as if profit is everywhere. Dispensaries are selling through all of their sativa, indica, and hybrid products to shoppers that just can’t get enough of the stuff. Investors can still make mistakes and lose money needlessly. Two of the most common mistakes include choosing to put all funds in one or two companies or choosing too many places for investment. Too few investments could mean huge losses if one or both companies struggle. Too many investments could make it impossible to stay updated on the well-being of each company. The investor that spreads their money out too far may miss prime buying or selling opportunities.

Reconsider investments in companies that withhold their corporate information. A successful business rarely wants to hide information from their stockholders, so it is often safe to assume that secrecy means that problems exist. The issues could include income losses, employee-related concerns, or legal problems. Make certain to seek legitimate information too, as some companies hire marketing firms to produce advertisements that look like glowing reviews or press releases. Research information through well-known investment sites like Motley Fool, Wall Street Journal, and Bloomberg, or talk to a broker.

 

How to Profit

Investors can never afford to research, invest, and walk away. The need for constant supervision over any portfolio is the only way to stay safe. Continuously stay updated on every company included in the portfolio. Investment in cannabis stocks also means people need to stay informed on the changes made by the federal government too. The regulations on the cannabis industry can have a major impact on the survivability of many companies. Potential risks exist from changes in the law or the impact of a company not abiding by the laws. The risk means that investors should only trust their money with companies that comply with all local, state, and federal regulations, and offer a compliance policy for investors to review.

Do not expect to make money overnight. The most successful stock portfolios take time to build. Do not rush to sell every time a stock has a jump in value or a slight loss. It is common for companies to have some large losses or gains in a brief time as the market fluctuates, but the biggest profit comes from their steady growth over years. Day traders, people that buy and sell multiple stocks within the same day, enjoy high-risk trading and only succeed when they have a deep knowledge of the market.

Do not willingly pay any price just to have marijuana stock or invest in a company only because it is part of the cannabis industry. Many supporters of the movement to legalize marijuana, either for medicinal or recreational use, have excitedly invested in the companies involved to help support their growth. The excitement in the legal status has artificially raised the prices of some stocks.

Compare company profit-and-loss statements, history, and the experience of the CEOs and CFOs before adding that business to a stock portfolio. Only choose cannabis companies that offer something unique that makes them stand out from the crowd. The average grower or dispensary may disappear over time as the marketplace becomes over-saturated with others that offer the exact service or product.

 

What Risks Exist

The stock market always has risks, so people should never invest more money than they can afford to lose. Stocks usually offer much more security for long-term investors than savings accounts and real estate, but there are never any guarantees. First-time investors should talk to a broker or another financial expert before they make any large investments.

The marijuana industry has higher risks than others because they have a brief history. Companies involved in the cannabis industry only became public for trading in 2018. Marijuana crops and sales remain illegal under federal law, so the government could close a business if they choose. Investment in cannabis stocks may even affect people who need government clearance for their employment. All employees of government-funded companies or government agencies should ask their employer about any complications that may arise before they begin investing.

The newness of the popular industry also means that many of the people involved have built profitable companies despite their inexperience. In other industries, most of the owners or CEOs were skilled entrepreneurs that learned their skills over years and eventually developed a successful business plan.  Cannabis businesses often start when people that loved the product take advantage of the new opportunity. The difference has helped to make the cannabis industry exciting and unique, but mistakes can happen. Sometimes inexperienced businesspeople unknowingly take inappropriate actions that harm or destroy an otherwise flourishing business.

 

What to Watch

The health of the cannabis market, like any industry, relies on supply and demand. Many people realized the potential for profit in growing marijuana as legalization expanded. If sales drop, it could cause an overabundance of the crop that could reduce its value. International legalization has also not happened as quickly as many in the industry would like. If foreign governments refuse to legalize cannabis, it could further reduce the potential markets many businesses had hoped would allow them to expand.

The growth could also continue if certain trends remain, like consumers reducing their alcohol use in favor of cannabis. Some countries may unexpectedly legalize the use of cannabis and create new markets. Investors need to watch these details to determine where they should invest.

Other items to watch include medical research into the benefits of cannabis and any pharmaceutical developments and FDA approved medications. The medicinal marijuana market has appeal for many traditional investors that do not invest in recreational marijuana stocks. The broader appeal of these types of stocks could boost the value of companies involved in the development of the medications.

Research other companies that eventually decide they want to include cannabis in their product line. Traditional food industry companies, for example, that plan to introduce a line of edibles or clothing manufacturers investing in hemp. Companies like these can help to make marijuana more of a mainstream product, increase their customer base, and boost the value of the companies they work with within the marijuana industry.

Risk exists with cannabis stocks, but so does the potential to earn large profits. Investors should start small, research extensively, and stay educated to make the most of what the marijuana industry has to offer. Even the most conservative investor should try to include a few cannabis stocks in their portfolio to help them sample what potential the industry can offer them.

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