Risk is something that is discussed quite often in the cannabis industry. Those who are extremely risk-averse, and want a more long term investment, might want to steer clear of the cannabis industry. But, those who are willing to watch their portfolio carefully, might just have a good time investing in marijuana stocks. Research continues to show that the cannabis industry will grow substantially in the next few years. Arcview Research recently stated that by 2027, the cannabis industry could be worth as much as $73 billion.
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Although that may be a stretch, even if we are to come near that number, it would mean a lot of growth for the industry at large. As the market continues to evolve, we may see cannabis industries begin to take shape around the world. Countries in Europe, Africa, and other areas, may begin to become major consumers and producers of cannabis in the near future. But, this does not mean that the future will be without risk. Rather, the risks of investing in cannabis are simply worth breaking down to see if pot stocks align with your investing style.
Pot Stocks are Notoriously Volatile
The cannabis market has been known to go through periods of major volatility on quite a regular basis. Despite some leading cannabis stocks being listed on the NASDAQ or NYSE, their volatility remains quite high. One of the main reasons for this is that the entire industry is only a few years old. This infancy means that traders trade-off of news rather than on more traditional indicators. When something happens to a company or the industry, pot stocks tend to jump or decline quite quickly.
This is the case with many industries, but it is especially true with cannabis stocks. Volatility is not a bad thing, but rather it takes knowledge for one to take advantage of it. Those who day trade using swing trading methods may be able to make gains during these periods, but others may see their portfolios and want something more stable. Stable options do exist in the cannabis industry, but the majority of companies are subject to large price swings.
What Does This Mean for Investors?
There have been good days and there have been bad days in the cannabis market. But, oftentimes we can have days when we see major double-digit percentage growth. This is not usually the case with other stocks listed on big exchanges, but it is the case with cannabis. There is undoubtedly a unique opportunity for the more risk inclined investors to see more potential with cannabis stocks than others. In other industries, double-digit percentage gains or losses can mean quite good or bad news.
But, cannabis stocks tend to have those days on a regular basis. The only issue here is in terms of down the road stability. While short term volatility can be a useful trading strategy, in order for the cannabis industry to grow, we need to begin to see some stability. With more stable price jumps and falls, investors may be more inclined to invest in the cannabis industry. For now however, remember to always do the proper research into a given pot stock to watch.
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