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Investing In Marijuana Stocks | The Ultimate Guide 2020

Learn everything about marijuana stocks in 2020.
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Author: Edith Muthoni
Last Updated: April 1, 2020

It is all legal to sell and distribute pot in Canada for medicinal and recreational purposes. And in the United States, 30 states have already passed legislation legalizing the use of cannabis for medicinal use.

Investing In Marijuana Stocks...

Away from the healthcare industry, textile industry players are after what the United States federal government considers a Schedule I drug that they use in the production of hemp that is then used for making textiles and fabrics.

The heightened demand for Marijuana in North America and its legalization has contributed to the mushrooming of cannabis inspired companies with a national outlook.

And with economic experts projecting the growth of the business here to a $10 billion industry and $22 billion by 2022, this is perhaps the best time to buy into some marijuana stocks.

But how do you gain access to marijuana stocks when NASDAQ and NYSE will not list marijuana company shares as long as DEA and Federal Government consider cannabis an illegal drug?

How do you decide on the best stock when almost all marijuana companies are relatively new with limited information about them and minimal to non-existent performance history for their stocks?

Note that while both of these issues are pertinent, there is still a way out. And it all starts with understanding the types of marijuana companies that you can invest in and where to buy the pot stock.

Types of cannabis companies currently available:

Biotech CompaniesThe GrowersThe Ancillary Businesses

Investing In Marijuana Stocks...These are the pharmaceutical involved in the processing of marijuana-based medicine. Cannabis-based medial solutions have for the longest time been used to treat chronic pain.

Its legalization in as much as 30 states in the country and Canada has led to the entry of numerous marijuana inspired pharmaceutical companies and products. Investing in these biotech companies still counts as an indirect investment to marijuana stocks.

Investing In Marijuana Stocks...This refers to the business involved in the large-scale cultivation of marijuana products. In most cases, these have set up numerous indoor facilities as well as greenhouses.

The fact that most banks and financial service providers in the United States would not advance the capital has forced them to turn to the stock markets, selling shares as a means of acquiring additional funds.

Investing In Marijuana Stocks...The marijuana industry doesn’t operate in isolation. It has in its wake inspired the advancement of a new industry comprised of ancillary products and services providers. These include marijuana consultancy firms, product packaging, and distribution companies as well as greenhouses, hydroponics, and lighting systems manufacturers.

The success of these companies and their stocks is closely knitted to the performance of the marijuana stocks and investments can also be construed to mean indirect marijuana stock investments.

Why invest in pot stock?

  • Huge growth potential:

The marijuana industry is still relatively new and barely explored. New ideas with regards to the use of the once- considered illegal drug are still cropping up, exposing the industry to exponential growth. More investors are still warming up to the idea of entering this space and getting in early presents you with the highest chance for growth.Investing In Marijuana Stocks...

  • Skyrocketing prices in the face of legalization:

The legalization of marijuana use in Canada saw numerous marijuana companies take to the stock markets, listing with the country’s largest stock and equity exchanges.

In the United States, 30 states have so far legalized the medicinal use of cannabis and this has led to the mushrooming of numerous marijuana companies and an untamed rush for their stocks.Both moves have seen Marijuana stocks skyrocket in the past few years.

  • The government is more likely to legalize marijuana use:

The biggest setback facing the marijuana industry and holding the stocks back from realizing their full potential in the money markets is the continued uncertainty of the United States federal government’s stand on medicinal and recreational use of marijuana. But in the face of more revenue and improved healthcare services, most industry operatives are confident that it will swing towards legalizing the product.

Pros and cons of investing in marijuana stocks

Pros

  • Early entrants stand to gain massively upon legalization of marijuana products
  • Present you with several investment options, both direct and indirect
  • They are relatively easy to liquidate
  • Can be used as a hedge against the beer and tobacco industry stocks
  • Investing in the diversified marijuana ETFs minimizes risk exposure

Cons

  • Criminalization of marijuana across the country by the federal government may result in insurmountable losses
  • You are investing blindly as there is little to no information about the company and performance of their hyped stocks

Where you can buy and sell marijuana stocks:

  • Public stock exchanges:

This option is only available to residents of Canada where marijuana companies are free to list their stocks at the national equity exchanges. Enthusiasts from the rest of the world wishing to trade invest in marijuana stocks may have to consider investing through stock brokerage houses that offer international trading services.

  • Over the counter (OTC) exchanges:

In the United States, marijuana is still considered an illegal drug by the federal government. This means that even after the legalization of the medicinal cannabis use by 30 states and the entry of the leading Canadian marijuana companies in the states, they still can’t list or trade their stocks at the SEC-regulated stock exchanges like NYSE or NASDAQ. If you hope to invest in marijuana stocks here, you will have to consider the over the counter exchanges like Chittagong Stock Exchange (CSE).

How to invest in marijuana stocks:

 

1. Buying shares from marijuana companies

Investing In Marijuana Stocks...In the United States, banks and financial service providers are rather conservative when it comes to advancing credit services to marijuana growers. These brands have, therefore, turned to the sale of company shares as a way of raising additional capital. Buying marijuana stocks from the cannabis growing companies, therefore, tops our list of the ways in which you can get in on the marijuana stock market. You should, however, note that these stocks aren’t publicly available on the stock exchanges, at least in the United States, implying that you will have to go through the over the counter exchanges.

Pros:

  • The massive popularization of the stocks has created a ready and highly liquid market
  • They are relatively inexpensive with most falling within the penny stock category
  • The fact that they are in a thriving industry gives them a huge growth potential

Cons:

  • Their future hangs in the balance as the government is still undecided about legalization or criminalization
2. Buying stocks of marijuana affiliated companies

Investing In Marijuana Stocks...The recent wave of legalization of marijuana as an approved drug for medicinal use hasn’t just birthed numerous cannabis growing companies. It has also led to the mushrooming of companies that either support or stand to benefit from the marijuana industry.

These include the different pharmaceuticals that upped their production of marijuana-based medicines as well as textile industries that use cannabis to produce hemp. Support companies whose growth has been impacted by the thriving of the cannabis industry include greenhouse and hydroponic manufacturers that supply to marijuana growing companies.

Investing in these stocks easily passes as an indirect investment in marijuana stocks. This is premised on the fact that their value almost always rises and falls depending on the performance in the pot stock. It also stretches to company stocks for beverage companies like Constellation Brands, the beer-maker that is looking forward to launching a cannabis-infused non-alcoholic beverage.

The best thing about in this affiliate marijuana stocks is that their performance is not wholly dependent on whether the federal government legalizes the medical use of Marijuana or not.

Pros:

  • Future performance not solely hinged on cannabis legitimization in the country
  • Most have their stocks already publicly trading on NYSE and NASDAQ
  • Easy to tell the best purchase and exit points due to rich trading history
  • Favorable uptake and performance pushes the affiliate company stock up

Cons:

  • Poor performing pot stocks may end up dragging down the affiliate company stock

 

3. Investing in the marijuana industry ETFs

Investing In Marijuana Stocks...Don’t feel like investing directly into the cannabis growing companies or their affiliate company stocks? Want a more diversified marijuana stock portfolio? Invest in some of the most popular marijuana focused exchange traded funds (ETFs).

The primary difference between investing in marijuana stocks and investments in marijuana ETFs include the fact that the latter offers more diversification.

ETFs give you a chance to invest in multiple marijuana company stocks as well as those of marijuana affiliates in the pharma and textile industries. Some will also include stocks for best-performing tobacco companies. In Canada, you can buy into these ETFs from the Toronto Stock Exchange (TSX).

United States residents seeking to invest in the marijuana focused ETFs will have to approach one of the numerous over the counter exchanges scattered all across the country.

Pros:

  • Offers a diversified investment portfolio that helps minimize risks
  • Allows you to invest in both the direct and affiliate marijuana stock companies
  • By including tobacco stocks, the ETF reduces the impact a shock on the marijuana industry would have on your investments

Cons:

  • They will cost you more than an average ETF
  • Most of the marijuana stocks included here are Canadian based with little to no features from the United States
4. Investment through online stock brokers

Investing In Marijuana Stocks...The cannabis industry is relatively new and still grappling with numerous investment challenges and key among them is lack of enough marijuana stock data. In such a case, making wise investment decisions like determining the best trade entry and exit points becomes an uphill task even for the more experienced stock traders.

Numerous online stock brokerage sites and investments apps like Stash Invest have however embraced marijuana stocks. They are also offering managed investment services, carefully packaged to suite both the veteran and beginner pot stock enthusiasts.

While you hop from one website to another searching for actionable pot stock data, these online stock brokerages use advanced trading algorithms. The award-winning money market investment software is able to piece together highly relevant marijuana stock data that they then use to execute profitable trades.

Pros:

  • Able to make more informed and more lucrative investment decisions
  • Offers a hands-free approach to marijuana stock investments
  • Some allow for automated reinvestments thus and compounding of interest earned in an effort to accelerate capital growth

Cons:

  • They too are subject to the stock market volatilities
5. Investment in foreign stocks

Investing In Marijuana Stocks...What happens if you are a United States residents, or from other parts of the world, where marijuana stock trading and marijuana-based companies are illegal but want to tap into the lucrative pot stock? How can you access the Canadian stock exchanges if you are looking for more direct investments or the American marijuana focused ETFs if you are after diversified portfolio?

Well, you can consider consulting a local stockbroker that provides access to the international stock markets. There are plenty of local and international brokerages like Ally Invest and Firstrade that offer direct access or investment management services to international clients seeking to access these markets or offer to manage your foreign pot stock investments.

Pros:

  • Access to expert managed pot stock investment services
  • Gives you a chance to invest in the previously considered inaccessible markets

Cons:

  • Exposes you to high management and transactional fees

Factors to consider when deciding on the best marijuana stock to invest in

  • Consider company growth:

When it comes to investments, the value and performance of the shares and stocks is only as good as the reputation of the company they represent. This extends to the reputation of its administrators. If you are going to invest in a marijuana stock, the last thing you need is its founder or the company’s tainted past preventing your stocks from realizing their full potential.

  • Mission and visions:

There is no better way of understanding a company’s future and vetting the viability of its shares and stocks than by going through its vission and mission statements. When looking for the best stocks to invest in, go through these declarations for your preferred brands. Investing In Marijuana Stocks...Then compare them to the strides taken by the company to get there. The key here is to only settle for marijuana company stocks with the highest potential for growth and expansion.

  • Stock performance charts:

An untainted management team and company past, as well as stellar vision and mission statements, are however not enough if they are not reflected in the performance of the stock. These perfect attributes exhibited by a marijuana stock must also reflect in a well-performing stock. That is why it is imperative that you scrutinize the performance of your preferred marijuana stock. Here you are looking at all the events preceding a significant gain or loss in value.

  • Cost of the stock:

There is no better way of emphasizing the importance of scrutinizing the value of different marijuana stocks and only investing in correctly priced marijuana stock. Understand that the forces of demand and supply, as well as company input and dividends paid on the issued stocks, will always have the final word in determining the value of a stock. You don’t want a large base of overvalued stocks in your portfolio.

 

Challenges facing marijuana stocks and how to overcome them

  • Overvalued companies:

Several factors have contributed to the creation of one of the biggest threats facing the marijuana industry, overvalued companies.  Key among them is the lack of funding by the banks, lack of proper regulation by such bodies as the SEC in the issuance of shares and stocks and the rush by the public to acquire marijuana stocks. These saw the companies expand rapidly while issuing overpriced stocks to unsuspecting investors who are realizing this just now as they watch the performance of these companies falter.

  • New shares dilute stock value:

In a bid to raise capital in a disadvantaged operating environment where cannabis companies can’t access credit services from banks, especially in the United States, these institutions have resorted to issuing new stocks. The expansion achieved with the new capital is however not commensurate to the number and value of the stocks issued. Every issue of new marijuana stocks in the recent past by a cannabis company has almost always led to a drop in the share price.

  • Uncertainty of cannabis legalization by the Federal Government:

30 states in the United States may have legalized the recreational and medicinal use of cannabis. The move, however, has little impact on the marijuana stocks and the companies backing them if the federal government insists on criminalizing the schedule I drug. And while most industry players are optimistic about the government agreeing with these states and legalizing cannabis, some feel that the Trump administration can still pull a surprise and veto the state legislation.

Bottom line

There are numerous ways in which you can invest in marijuana stocks. And identifying the best starts with evaluating your risk tolerance, prior experience in analyzing the stock markets and trading as well as the level of exposure to the pot stocks. For instance, most experienced traders will consider personally vetting and analyzing the different company stocks while beginners will often turn to online stock brokerage houses. Similarly, risk-tolerant investors will consider buying marijuana stocks directly while the more conservative enthusiasts will turn to marijuana ETFs or purchase shares from cannabis affiliated companies in the pharma and textile industries.

FAQs

Is the use of Marijuana legal in the U.S?

Not at the federal level where the DEA classifies it as a schedule I drug. The production and distribution of the drug for recreational purposes or as a prescription drug, especially for patients undergoing chemotherapy or with chronic pain issues have nevertheless received the go-ahead in 30 states.

What is the projected value of the marijuana stock industry?

By the end of 2019, marijuana stocks are expected to surpass the $10 billion mark and hit up to $22 billion by 2022. If the federal government legalizes the use of the drug, conservative estimates place the value of marijuana stocks at a between $100 billion and $150 billion in the next 10 to 15 years.

Are marijuana stocks legal in the United States?

While the Canadian cannabis companies like Tilray may have set up shop in the United States and started the distribution of Marijuana stocks, their sale isn’t exactly legal. This explains why neither the company nor the stocks are under SEC scrutiny or being traded on such popular exchanges as NYSE or NASDAQ.

Can you invest in Canadian marijuana stocks while in the U.S?

Yes, you can invest in marijuana stocks traded in the Canadian stock exchanges while in the United States. You achieve this by employing the service of a robo advisor or stock broker, online or offline, which support foreign stock investments. Alternatively, you can invest in these through the marijuana focused ETFs.

Should I invest in Cannabis stocks?

The answer to this depends on risk tolerance levels. Note that the decision to either legalize the recreational and medicinal use of cannabis in the country by the federal government will seal the fate of marijuana stocks. If you are willing to gamble with the likelihood of the Trump administration legalizing the use of cannabis, now is the best time to invest and if not, you might want to wait until the federal government makes its decision.

How much can I invest in marijuana stocks?

To a large extent, this depends on the disposable incomes at hand as well as your choice of investment vehicle. Note that while most online stock brokerages require minimal initial deposits, Marijuana focused ETFs are considerably capital intensive.

What are the best Marijuana stocks to invest in now?

Some of the most popular cannabis companies whose stocks you should include in your investment watch list include Tilray Inc., Canopy Growth Corp, Green Organic Dutchman Holdings Ltd., GW Pharmaceuticals PLC-ADR, and Aurora Cannabis Inc. They all have a market capitalization of above $300 million and poised for even greater growth.

What is marijuana cryptocurrency?

These refer to cryptocurrencies that operate in ways quite similar to Bitcoin but specifically designed to facilitate marijuana stock trades. These include PotCoin, HempCoin, CannabisCoin, and DopeCoin and their use was inspired by the fact the government is yet to legalize marijuana stock trading.

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Edith is an investment writer, trader, and personal finance coach specializing in investments advice around the fintech niche. Her fields of expertise include stocks, commodities, forex, indices, bonds, and cryptocurrency investments. She holds a Masters degree in Economics with years of experience as a banker-cum-investment analyst. She is currently the chief editor, learnbonds.com where she specializes in spotting investment opportunities in the emerging financial technology scene and coming up with practical strategies for their exploitation. She also helps her clients identify and take advantage of investment opportunities in the disruptive Fintech world.

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