Investing In Marijuana Stocks | The Ultimate Guide 2021
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.
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?
Types of cannabis companies currently available:
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.
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.
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.
- 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.
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:
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. 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.
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.