The marijuana industry is expected to triple in the next five years … and many investors are looking to profit.
As states and entire countries decriminalize or legalize cannabis and/or its components, there are loads of opportunities for entrepreneurs and existing companies.
But as in any nascent industry, there are also loads of risks and bad actors. Whether you’re a first-time investor or a seasoned veteran, it pays to understand all of the moving parts.
This guide seeks to quickly get you up to speed.
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="How to invest in marijuana stocks” data-reactid=”15″>How to invest in marijuana stocks
Follow these seven steps if you’re thinking about buying cannabis stocks. Below is a summary, but we encourage you to read the entire article linked below for all the details.
1. Understand the types of marijuana products
- There are two types of cannabis products: medical marijuana vs. recreational marijuana.
- Cannabidiol (CBD) is a cannabinoid that is different than the psychoactive delta-9 tetrahydrocannabinol (THC).
2. Know the different types of marijuana stocks
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Marijuana growers like Canopy Growth Corporation (NYSE: CGC).
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Cannabis-focused biotechs like GW Pharmaceuticals (NASDAQ: GWPH).
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Providers of supporting products and services like Scotts Miracle-Gro (NYSE: SMG).
3. Understand the risks of investing in marijuana stocks
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Legal and political risks
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Supply/demand imbalances
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Risk in those that are over-the-counter stocks
4. Know what to look for in a marijuana stock
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Normal stock considerations, including:
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Cannabis production costs
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For Canadian companies, the extent of international operations and distribution
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Dilution risks via warrants and convertible securities
5. Evaluate the top marijuana stocks and exchange-traded funds (ETFs):
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Marijuana growers like Canopy Growth, Aurora Cannabis (NYSE: ACB), Tilray (NASDAQ: TLRY), and Aphria (NYSE: APHA).
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Biotechs like GW Pharmaceuticals, Cara Therapeutics (NASDAQ: CARA), and Insys Therapeutics (NASDAQ: INSY).
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Ancillary providers like Scotts Miracle-Gro.
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ETFs like Horizons Marijuana Life Sciences ETF (NASDAQOTH: HMLSF) and ETFMG Alternative Harvest ETF (NYSEMKT: MJ).
6. Invest carefully
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For many, avoiding individual investments in the marijuana space entirely is the right call.
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For those who buy in, keeping your marijuana exposure to a small percentage of your overall portfolio limits your risk.
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Pure plays are riskier than more diversified plays.
7. Monitor changing industry dynamics closely
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Laws, regulations, competitive forces, and the business strategies of the companies themselves will all change rapidly over time.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read more: How to Invest in Marijuana Stocks” data-reactid=”51″>Read more: How to Invest in Marijuana Stocks
Cannabis Leaves. Image Source: Getty Images.
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="But, really, should I buy marijuana stocks? ” data-reactid=”64″>But, really, should I buy marijuana stocks?
We just went step-by-step through how to invest in cannabis, but just because there’s a trendy new sector with lots of press and potential growth doesn’t mean you need to put your hard-earned money in it. After all, if you buy broad index funds, you’re covered no matter what sector of the stock market does well.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Think through the pros and cons as you read on: Should You Invest in Marijuana Stocks?” data-reactid=”66″>Think through the pros and cons as you read on: Should You Invest in Marijuana Stocks?
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="What’s the history of marijuana legalization in the US … and what’s ahead in the future?” data-reactid=”67″>What’s the history of marijuana legalization in the US … and what’s ahead in the future?
One of the biggest variables in cannabis investing is to what extent marijuana will be decriminalized or legalized within the United States … both on a state-by-state basis and on a federal basis.
Here’s a quick spin through what we’ve seen so far, from decriminalization efforts starting in 1973 to legalization efforts beginning in earnest in 1996 to the political signs of where we seem to be heading.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read on: Timeline for Marijuana Legalization in the United States: How the Dominoes Are Falling” data-reactid=”70″>Read on: Timeline for Marijuana Legalization in the United States: How the Dominoes Are Falling
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="More information on Canadian marijuana stocks” data-reactid=”71″>More information on Canadian marijuana stocks
There’s been tremendous interest in Canadian cannabis stocks because on October 17, 2018, recreational use of marijuana became legal in Canada (it had been legalized on a medical basis since 2001).
Beyond consumption by Canadians, the upside thesis involves operations or distribution to other countries that have legalized or may legalize marijuana to various extents. This includes Germany and particularly the large market on Canada’s southern border.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read on: Everything You Need to Know About Investing in Canadian Marijuana Stocks” data-reactid=”74″>Read on: Everything You Need to Know About Investing in Canadian Marijuana Stocks
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Commonly confused cannabis terms” data-reactid=”75″>Commonly confused cannabis terms
One of the difficulties in understanding the marijuana industry is the jargon. Fortunately, it’s not too complicated once you get a handle on a few main terms.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Marijuana vs. cannabis” data-reactid=”77″>Marijuana vs. cannabis
Cannabis is the scientific name of the plant (the genus that houses three species). For an investor’s purposes, marijuana is synonymous with cannabis, as are more informal nicknames like pot, weed, ganja, dope, grass, 420, sticky icky, etc.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="CBD vs. THC” data-reactid=”79″>CBD vs. THC
Cannabis is made up of nearly 500 chemical constituents, including many dozens of cannabinoids (substances that act on the body’s cannabinoid receptors).
The two most commercially relevant of these cannabinoids are delta-9 tetrahydrocannabinol (THC) and cannabidiol (CBD). Only THC is psychoactive (i.e. makes you high).
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Hemp” data-reactid=”82″>Hemp
Hemp is a strain of a species of cannabis with relatively low levels of THC and relatively high levels of CBD. It has many industrial uses like rope and clothing.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content=" More From The Motley Fool ” data-reactid=”84″> More From The Motley Fool
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.” data-reactid=”90″>The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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