Demystifying investment in cannabis stocks
Stoners Rotation offers deep insights into the best, and perhaps the worst performing marijuana stocks available in the market. When it comes to how you invest your money, it’s important to clear the smoke surrounding the volatile yet budding cannabis industry.
If you’ve ever bought shares in any business or industry in the past, cannabis stocks are mostly the same. Our stocks overview goes behind the scenes to uncover how the business side of the marijuana industry truly ticks. If you’ve never bought shares before now, we’ve got you covered. Our insights are simple enough for beginners to understand, yet detailed enough for experts to value too.
Is it safe or legal to invest in cannabis stocks?
It is both safe and legal to invest in cannabis stocks. Since marijuana is yet to be legalized at the Federal level in the U.S., many cannabis companies in the country usually enter into limited partnerships with Canadian companies before gaining access to the stock market. Cannabis has been legalized in Canada since 2018. However, we also highlight the risks associated with investing in cannabis stocks from time to time.
Where are cannabis stocks listed?
Just like regular business stocks, cannabis stocks are usually listed in the most popular stock exchanges in the world. Stock exchanges like NASDAQ, CSE, NYSE, and TSE have been known to host cannabis stocks. However, some stocks are traded over the counter (OTC).
Understanding marijuana stocks
Our Stocks category will help you understand key details about marijuana stocks including types of companies and stocks that exist.
Types of marijuana companies
Marijuana companies will usually fall under three categories: growers, cannabis-based biotechs and pharma and supporting products/services providers.
Marijuana growers generally cultivate cannabis, mostly from indoor facilities or greenhouses.
Cannabis-based biotechs and pharma
These are usually large companies that invest heavily in the research and development of cannabis-based prescription drugs.
Support products and services providers
These companies provide ancillary products and services for the marijuana industry. Consulting, hydroponics, packaging, and lighting systems usually fall within this category.
Recreational vs Medical cannabis stocks
You can check out our detailed post about recreational vs medical cannabis stocks for information. Recreational cannabis stocks represent companies that produce and distribute adult-use marijuana products. Meanwhile, medical marijuana stocks refer to businesses that research and develop cannabis-based prescription drugs. Ultimately, you’ll need to decide which of these company types you’d like to invest in.
What are OTC cannabis stocks?
OTC cannabis stocks refer to stocks that are traded over the counter. These stocks are not listed on any of the popular or more reputable exchanges. However, some cannabis stocks are available to trade over the counter and also via a more reputable exchange like the CSE.
How to invest in cannabis stocks
Like business stocks in other industries, you can invest in cannabis stocks either directly, or indirectly via ETFs.
You can invest in cannabis stocks by directly buying the individual stock of your choice. For instance, via the Robinhood trading app, you could invest in Aurora Cannabis (NYSE: ACB) or Canopy Growth Corp (NASDAQ: CGC) stocks.
Via exchange-traded funds (ETFs)
An exchange-traded fund is a basket of securities that are traded on an exchange. ETFs are designed like mutual funds, except that they can be traded all day long. Marijuana ETFs will typically allow you to invest in a basket of cannabis stocks, even after the close of trade daily.
Risks associated with investing in cannabis stocks
Just like every other industry, investing in cannabis stocks comes with its risks. Some of these include:
Fragile hopes for growth
The success or failure of most marijuana businesses in the U.S. and perhaps Canada is hinged on hope. This could be in terms of hope for legalization in the U.S., or reduced bottlenecks in Canada. Delays in marijuana legalization or policy changes could ultimately be costly to investors.
Unlike other industries, some cannabis stocks can be somewhat volatile in terms of daily gains or losses.
Lack of profitability
Despite huge investments in the sector, most marijuana stocks are yet to become profitable. Challenges like legislative or provincial bottlenecks and the thriving black market continue to hinder sales growth.
Should you invest in marijuana stocks?
Despite the potential gains that could result from investing in cannabis stocks, the decision is solely up to you. The industry is rapidly evolving and with more states in the U.S. actively developing pro-marijuana legislation, the best time to invest in the industry is now. Check here for the top mistakes to avoid when investing in the marijuana industry.