The weed industry is no doubt flourishing nowadays. Experts even compare such hype around the cannabis with a gold rush calling it “the green rush.” No wonder there are many people who want to join and benefit from the growing pot market. Traditional businesses, such as cultivation and processing, continue to thrive while young ventures and startups surprise the industry with new marijuana-related products. If you are interested in cannabis and willing to make money out of it but don't have an opportunity, desire or courage to start your own business, then we have something worth your attention.
Investing in cannabis stocks is an option that equally available for both beginners and seasoned market players. In the year 2018, investments in cannabis exceeded $13 billion, which is almost three times higher compared to 2017. If these figures didn't impress you, then here's more: a compound annual growth rate (CAGR) of the weed market is about 26.7% and an average deal size is valued at approximately $23 million.
The above data confirm the mainstream status of the marijuana industry. Successful companies listing their stocks on the major US exchanges the NYSE and the Nasdaq, which, in turn, became a trading place for two big cannabis Exchange Traded Funds (ETFs): the ETFMG Alternative Harvest ETF and the Horizons Marijuana Life Sciences Index ETF.
Over the past few years, we have observed startling ups and downs of startup ventures, while more established companies have shown a steady development, bringing a profit for their investors. If you decided to conquer the volatile marijuana stock market, the important thing to know is how to tell the difference between a trustworthy company and the one, doesn't worth your attention. But we'll come back to this later. And now, I'd like to present you a guide on investing in cannabis stocks, we have designed taking care of our readers' wallets and nerves.
- Explore the market
The entire cannabis industry can be broadly divided into 2 main categories: medical marijuana and recreational marijuana.
As a treatment of choice, medical weed was legalized in 33 U.S. states that actively develop their own medical marijuana programs. Typically, under such a program, qualified patients obtain their medical marijuana cards and, by physician prescription, may receive an established dose of cannabis to alleviate or treat the symptoms of the disease. Studies have confirmed that weed acts as an effective medicine for treating such qualifying medical conditions as:
- illnesses affecting the immune system:
- AIDS/HIV
- multiple sclerosis
- mental disorders
- substance use disorders
- inflammation
- pain
- epilepsy
Medical marijuana owes its healing properties to a compound called cannabidiol (CBD). CBD is one of many chemicals in the cannabis plant known as cannabinoids. It won't make you feel high due to the lack of psychoactive properties, but it will definitely benefit your health.
The great variety of goods presented on the medical cannabis market allows you to choose the right product. Medical weed can be consumed by smoking dried flowers or vaping concentrates, you can add marijuana-based supplements to your meals or consume ready-made cannabis-infused edibles and beverages. Marijuana can also be beneficial when applied externally in a form of various oils.
While in medical marijuana, the main acting component is CBD, recreational weed is famous for another cannabinoid, called tetrahydrocannabinol (THC). This particular compound provides you with a euphoric effect, relaxation, relieves anxiety and stress.
Recreational cannabis products are legal for adult use in nine American states and the District of Columbia. The most popular method of consumption is smoking, followed by vaping and edibles consuming. Thanks to the opening of cannabis-positive cafes all over the country and the growing number of public smoking permits, recreational marijuana use is gaining more popularity and social acceptance.
- Be aware of different MJ stocks types
As many products presented on the marijuana market, as many MJ stocks are available for investing. All the pot stocks can be generally divided into 3 main categories:
- Growing and retailing facilities – Companies of this type are engaged in weed cultivation (mostly indoors, using greenhouses), harvesting and delivering the end product to customers. An example of such a venture is Canadian Canopy Growth, which recently striking all the news headlines. Some businesses are also involved in running retail stores for selling recreational and/or medical cannabis.
- Cannabis-related biotechs – The activities of these companies (like GW Pharmaceuticals) are focused on manufacturing cannabinoid drug products.
- Ancillary products and services – Enterprises of this type are involved in the production of goods and services providing to meet the needs of growers and retailers. They may produce lighting, hydroponics systems (a key focus for Scotts Miracle-Gro), packaging solutions or even management services.
- Evaluate the risks of investing
Any investment involves a certain level of risk. However, investing in cannabis stocks has several special risks that one should keep in mind when making financial decisions.
- Legal status
Or it should be better called "illegal status" as marijuana and everything connected with this issue remains beyond the law on the federal level. The main threat in this state of things is that the U.S. Department of Justice or another Supreme authority can at any time prohibit the cannabis businesses activity, no matter medical or recreational.
President Donald Trump has publicly stated he is ready to promote marijuana legalization and gave the green light for states to enforce their own marijuana legislation. However, there is no guarantee this legislation will come into force. The situation is also complicated by the lack of legislative regulation on the marijuana industry financing. Although, the SAFE Banking Act was firstly introduced in March 2019, now, after almost 5 months, the bill is still under discussion and cannabis companies are deprived of banking services.
- Over-the-counter (OTC) stocks
Over-the-counter or off-exchange trading is made directly between two parties, without the control of an exchange. The reason OTC stocks have appeared follows from the previous paragraph. The fact that cannabis is still illegal on a federal level and classified as a Schedule I drug by the DEA made it difficult for most companies to get listed on the top U.S. exchanges. In the search for solutions, many American ventures have gone public in Canadian exchanges. Others haven't found another alternative how to trade on the native over-the-counter exchanges.
OTC exchanges can be very misleading as they do not impose such high requirements on companies like the Nasdaq or the NYSE do. Although, the company can be listed on the OTC exchange even without passing the Securities and Exchange Commission (SEC) review, what is usually required by the top exchanges. Do not underestimate stocks traded over-the-counter, but if the company doesn’t file with the SEC, you should probably not pay attention to it.
- Demand and supply imbalances
Recently, a San Francisco-based cannabis distribution company Vessel Logistics has calculated that existing legal growers can produce 9 million pounds of cannabis every year, but the permitted wholesale market needs only up to 2.2 million pounds. So here we already have a mismatch between the supply and the demand of over 300%. The similar situation in Canada was called big supply glut.
And now let's move on from growers to stocks. In trying to stay competitive, companies, whose products are in plenty, will have to cut prices. This, in turn, will lead the companies' stocks to a fall in the value. But the good news is that the demand for marijuana products is expected to increase in the nearest future. All thanks to the young and promising German medical marijuana market.
- Know the company and its stocks
Once you familiarize yourself with the marijuana industry and evaluate all the possible risks, it's time to move from theory to practice. To find a prospective company and avoid pump-and-dump schemes conduct a market research. Learn as much as possible about the business, its leaders, products and reputation. Spend some time monitoring the company's stocks index. The best thing to do is to check SEC reviews and other qualifying documentation. But accessing such information can be difficult and time-consuming. In this case, you can always keep track of index changes and company latest news on our site Infuzes.com
- Determine your budget
The main rule on the stock market is never to invest more than you are ready to lose. Even the most thorough research cannot guarantee success in stocks trading. The marijuana industry is so volatile, with new companies emerging almost daily it is very difficult to make a winning bet.
- Schedule your trading
After the amount of investment, the second most important question is when to invest. Think in advance of your thresholds. It will save you from panic and calm your passion when it's unnecessary. Decide for yourself that you, for example, will sell a stock if it falls below the price X or rises above the price Y.
- Hire a broker
When all the previous steps were completed it's time to buy your shares. You can reach a brick and mortar broker or find some specialist online. The result will not change, so it all depends on which variant is more convenient for you. In any case, you can start buying stocks after your account will be created and funded with some money.
- Buy the stock
It seems there is nothing to add but the stock buying process can be a little more complicated than you might imagine. There are two main ways to purchase stock: through the market order and a limit order. With a market order, the buying will be executed at the present market price, while with a limit order — only if the stock price falls below a set limit. On the one hand, a limit price gives an investor a lower entry price, but on the other hand, no one can guarantee the limit order will be executed.
- Sell the stock
If you have already earned the desired returns on your asset, sell the stock without a twinge of conscience. You can either spend the money earned on the next investment or use it at your own discretion.
To become successful in trading and investing you should keep your finger on the pulse of the latest industry trends. We propose you to do it together with us. On our site, you can follow the changes of the market index of different companies and find the freshest news from the world of cannabis. Do not hesitate and subscribe to our newsletter already now!