How to Invest in Marijuana Stocks?

UTC by Adedamola Bada · 8 min read
How to Invest in Marijuana Stocks?
Photo: Depositphotos

When the word ‘marijuana’ is mentioned, a lot of people have different thoughts. However, irrespective of any form of thinking, marijuana has grown to become a financial instrument that can be traded.

Nowadays, it is easier for potential investors to purchase and sell marijuana stock. In fact, marijuana stocks can be bought via the usual brokerage. Interestingly, several firms deal with marijuana and are traded on the New York Stock Exchange.

Marijuana stocks are like any other type of investment; investing in the wrong type of stock loses you money. While it is true that the marijuana stock market is experiencing increased growth, investing in them could prove to be of high-risk. For two years running, the marijuana industry has been pumped with money up to the tune of $26 billion.

Investing in Marijuana Stocks through a Brokerage

To invest in marijuana, you’ll need a brokerage account. Before you invest though, it would be best to make calculations on how much you’re willing to invest. You need to make sure the amount would be something you’re comfortable to lose as a stock investment could be risky. Once you’ve done this, you can register and fund your brokerage account with money.

You could also decide to invest in exchange-traded funds (ETFs) if you don’t want to buy marijuana stocks directly. The investment opportunities are several and you can make a choice based on your specifications. Even if you want to lower the volume of your investment and buy less than a share of marijuana stock, there are several services available to proffer that option to you.

When you want to invest in the marijuana stock of your choice, you’ll have two options to facilitate making your purchase. The first is to purchase the stock at market order. A market order facilitates the purchase of stock at the prevailing market price. For instance, if at the exact moment you intend to buy the stock the market price is $35.21, you will purchase the stock at that market price.

The other type of order is the limit order. A limit order allows you to select what price at which you intend to buy the stock. Even if the marijuana stock is trading at $35, you can set a limit order to buy the stock at $15. The moment the stock price hits $15, your stock would be purchased for you automatically.

The State of the Marijuana Market

The marijuana industry in the U.S. has been experiencing swift growth, owing to the fact that a lot more states are legalizing the drug for both medicinal and recreational utilization. Similar to every other industry that’s relatively new to the stock market, several investors are flooding the marijuana industry.

Before you purchase marijuana stock, you first need to understand how the industry works. Marijuana stocks and marijuana products are in varying categories. Also, even though marijuana is legal in several states in the U.S., it is federally considered an illegal product. This factor is one that several potential investors consider before making the decision to buy or forget marijuana stock. There is a chance that legal authorities in the U.S. can decide to descend heavily on the marijuana market.

In recent years, policies that previously protected the marijuana industry have been annulled, giving the federal government a higher level of reach. Politicians are, however, supporting the marijuana industry. It remains uncertain if a bill legalizing cannabis will be signed into law anytime soon.

There is also speculation in the stock market that several marijuana companies are overvalued. Some marijuana stocks are highly valued due to the amount of anticipation held by investors on potential growth. However, the biggest fear in the marijuana industry is the increase in supply in relation to demand over the coming years.

When the supply of any commodity exceeds its demand, its value drops and the market shifts towards equilibrium, causing prices to fall. When the price of marijuana falls, it would herald a further reduction in stock prices since the profit of cannabis companies would also fall.

If you, however, decide to invest in marijuana shares, there are several firms you can decide to buy from. Some of the highly known marijuana stocks include Terra Tech Corp (TRTC), Aurora Cannabis Inc. (ACB), Cara Therapeutics (CARA) and The Scotts Miracle-Gro Company (SMG).

Types of Marijuana Products

There are two types of marijuana commodities. The first is medical marijuana and the second is recreational marijuana.

Medical marijuana is frequently called medical cannabis and has been legalized in 33 states in the U.S. It has also received approval in 30 nations. Before medical cannabis can be gotten, a prescription would be needed from a doctor or medical staff. It is majorly used to cure anxiety, pain and the reduction of stress. It can be ingested in the body through smoking or vaping concentrates.

Medical marijuana can also be ingested by eating food that contains marijuana. In fact, there are different body creams and lotions that have marijuana or its constituents in them. One of the highly used constituents is cannabidiol (CBD). CBD offers a lot of medical advantages to a person. Notably, a CBD-based drug has been approved by pharmaceutical authorities.

Recreational cannabis, on the other hand, has been legalized in 11 states in the U.S. for use by adults. It has also been federally approved in countries like Uruguay and Canada. The ingestion of marijuana through the smoking remains the most usual style of taking in the product.

Types of Marijuana Stocks

There are three major types of marijuana stock. They include marijuana growers and retailers, marijuana biotechs and providers of products and services.

Marijuana growers cultivate the marijuana plant mostly in greenhouses and sell the products when harvested. Marijuana biotechs are focused on making drugs by using constituents of marijuana. Providers of products and services prop up cannabis growers by providing products and services such as lighting systems.

What to Do Before Investing in Marijuana

The very first step to marijuana investment would be to take marijuana stocks like the typical technology or health stock you would buy. You have to make an extensive research on the company you intend to invest in, their milestones achieved, project management, position in the market, and statement of financial position.

Its financial position is quite key because if the company hasn’t made a profit yet, you’ll not receive annual dividends. The key part about the firm’s finance would, however, be the possibility of continuity into the future. You need to be able to determine if the firm has enough liquidity to stabilize operations well into the future.

If the firm can’t, it would have one of two options. It could increase its number of shares to be sold to the public, an action that would reduce the price of already existing shares. The company could also borrow, which would reduce its amount of equity.

You also need to check the major marijuana stocks in the market. The largest cannabis firm is Canopy Growth Corporation which is traded on the NYSE. As of March 2020, has a market capitalization of $7.2 billion. The company is particularly huge because of its numerous facilities and size of production capability. The company also has trade agreements with 10 Canadian provinces and is dominant in Germany’s growing medical marijuana market. It operates in about 15 countries.

GW Pharmaceuticals is another great cannabis company to invest in. The firm was the first to get approval in the U.S. for a marijuana constituent called Epidiolex in 2018. In Europe, the company has also won approval for Epidiolex for the treatment of Dravet Syndrome.

Conclusion

Before attempting any investment in the marijuana industry, you have to make certain that you’ll invest carefully. Cannabis stocks are risky and volatile and could either suck up a lot of investment or grow it in large proportions. The best investment style when purchasing marijuana stock is to initially buy a small amount of stock. Regular observance of the industry would also be required.

An approval or situation that would increase the demand for marijuana products should be watched out for as they would lead to a general increase in stock prices. With the steady growth of the market, you could decide to increase your investment in the industry. If you were hoping for a certain level of growth in the industry that doesn’t occur, you can decide to get out of the industry.

Certain companies deal with marijuana products and can be considered safe to buy up stock from. These companies typically make the bulk of their returns from products that have nothing to do with marijuana. Hence, they’d be less hit than firms fully concentrating on the sale of marijuana and its ingredients.

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