Marijuana stocks, like any investment, involve a level of risk. But deciding if marijuana stocks are right for you is a personal question to answer. Needless to say, there are pros and cons of looking for marijuana stocks to buy instead of things like tech or mining stocks.
The main attraction to the cannabis industry itself is that it is relatively new. But, since it is so new, it’s very unique to see such a fresh industry set for exponential growth.
How Big Is The Cannabis Industry?
When it comes to investing, you should first know what you’re getting into. Pot stocks are some of the hottest equities in the market and for good reason. According to Grand View Research, the legal marijuana market will likely be worth roughly $66.3 billion by 2025 and grow at a compounded annual rate of 23.9%[1]. The further adoption of cannabis on numerous levels has brought acceptance to all-time highs.
Not only are we starting to see advancement for medical marijuana but the recreational cannabis industry is evolving. In a Hill-HarrisX poll, 84% of Americans now support legalizing marijuana [2]. This is a night and day difference compared to past polls from even the early 2000s. Regardless, it is a clear indication that the vast majority of the population is interested in the cannabis industry’s growth.
Even though this is the case, marijuana is still illegal at a federal level in the United States. But like most industries, the US is just part of the equation. Cannabis is now a global cash crop. In this light, there are plenty of pot stocks to buy that do business in other markets.
One of the top industry catalysts that have happened within the last few years has been Canada’s full legalization of cannabis. But that is set to get even bigger in 2019. In October, the country will expand legality to include cannabis derivatives. These are products that include waxes, oils, edibles, and other “non-flower” related items.
How To Buy Marijuana Stocks
Similar to penny stocks, marijuana stocks may have other restrictions when it comes to choosing brokers. Most of the mainstream online brokers allow trading of marijuana stocks. In fact, you can easily buy pot stocks through E*TRADE, TDAmeritrade, Fidelity, and even Robinhood.
The downside with a platform like Robinhood is that the pool of pot stocks to buy is limited. The platform doesn’t allow trading OTC listed stocks. So even if a certain marijuana stock to buy isn’t technically a penny stock, if it’s listed on the OTC, it’s a no go for Robinhood.
But when it comes to putting your list of marijuana stocks together, what are you looking for? This is a good question especially if you’re just getting your feet wet with investing in marijuana stocks. Though the sector has matured, there are still instances of certain companies not living up to their fullest potential.
Back in the early days of cannabis legalization, there were plenty of fraudulent companies piggy-backing on the industry hype. Today, there’s a bit more scrutiny on sector stocks.
What About My List Of Marijuana Stocks?
When you are putting together a list of marijuana stocks to watch, make sure you keep some fundamentals in mind. It’s important to understand what you’re getting yourself into even if it’s for a short-term trade. At the very least, it will help you understand why a particular cannabis stock is moving the way it is.
Management
This is one of the more important factors when looking at certain pot stocks to add to your list. Management is important because it is the backbone of the corporate growth strategy. It’s great to have a pile of weed but if the company doesn’t know how to effectively generate revenue from it, there’s minimal value in my opinion.
Understand what the company’s intentions are. What is the growth strategy? How are they addressing the competitive landscape? How have they managed the company’s cash position or, on the other hand, debt load? These are just a few things to consider
What Type Of Marijuana Stock Are you Buying?
This has to do with a company’s business model. Is the company a grower? Do they focus on distribution? Is the company looking to manage or grow a dispensary footprint? Do they touch the plant or just manage the real estate?
The other side of the coin involves biotechnology marijuana stocks. Are they going for FDA trials? Have they failed in the past, and how are they working to right the ship?
What Risks May Be Involved With Pot Stocks?
Of course, we know the industry itself poses some risks based on legalization. Beyond that, other risks involve other things. Supply and demand have been a big focus for the biggest pot stocks in the market. Being able to not only produce enough cannabis but also hold that inventory without it going bad is becoming a big concern. Other risks are the stocks themselves.
As I said earlier, we haven’t seen as many fraudulent companies as we did during the early years, but when it comes to OTC stocks, it’s important to note a few things. This includes fully detailed financials, transparent communication from the company to shareholders, and fully disclosing material events.
Cannabis ETFs And Marijuana Stocks To Buy
Since the advent of the first marijuana stock ETF, we’ve done a good job at following the money. Let’s face it, if an ETF or multiple ETF’s pile into the same stock, that pot stock is likely to see some volatility and potential for price movement as well. Now that there are multiple pot stock ETF’s, there’s more to pay attention to especially when it comes time to rebalance.
Through this process, ETFs will realign the weightings of portfolios. This may include buying more of one pot stock and/or selling off other marijuana stocks. Essentially, the process looks to safeguard the fund and its investors from overexposure to any given stock. Essentially, if an ETF starts buying up more shares of certain pot stocks, it may be time to start paying attention to those stocks or stocks with similar business models.
Are Marijuana Stocks Right For Me?
One of the biggest concerns right now is that marijuana isn’t fully legal yet. Even though states are slowly changing that on some level, federally it still poses a big question mark. But outside of this, marijuana stocks are just another asset class that should have further consideration.
[Read More] What To Know When Investing In Marijuana Stocks
Treating it as a safe investment may not be the right angle to take because there are still regulatory risks that persist. But given the current landscape, pot stocks may earn a place in the higher-risk part of your portfolio. Just make sure you do your research and fully understand what you’re getting yourself into.
Marijuana Stocks (marijuanastocks.com) does its best to provide clear, concise, and transparent information on the best marijuana stocks. With a full list of marijuana stocks and real-time pot stock news as well as full cannabis industry info, we aim to be the go-to resource for all things marijuana stocks.
[2] https://thehill.com/hilltv/what-americas-thinking/439104-84-percent-in-new-survey-say-marijuana-use-should-be-legal
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