Investor interest in medical and recreational marijuana is starting to grow. Should you join the bandwagon?
In this article:
- What Companies Offer Marijuana Stocks?
- Which Marijuana Stocks Offer High Risks and Growth?
- How Can I Invest in Marijuana Stocks?
- What Should I Watch Out for in Marijuana Stocks?
- Why Should I Consider Investing in Marijuana Stocks?
- Where Should I Turn to for Advice About Investing in Marijuana Stocks?
Medical & Recreational Marijuana Stocks: Things to Know
What Companies Offer Marijuana Stocks?
Most companies related to cannabis sales and production offer stocks. And there are a lot of ways in which one can categorize these companies. Here are at least three general categories of these companies:
- Growers – companies that grow and sell marijuana products, such as Canopy Growth Corporation (NYSE:CGC). Companies under this category may be further classified into these sectors:
– cultivation and retail sector – those that grow and sell cannabis flower and other related products
– hemp products sector – those that grow and sell hemp products
– marijuana products sector – those that develop and sell marijuana-infused products
- Biotechs – companies that develop and sell drugs using cannabinoids, such as GW Pharmaceuticals (NASDAQ:GWPH).
- Supply providers – companies that make cannabis growth possible by providing the necessary equipment and tools, such as Scoots Miracle-Gro (NYSE:SMG). Companies under this category may be further classified into these sectors:
– agricultural technology sector – those that provide equipment and supplies that assist in producing and cultivating the cannabis plant.
– consumption devices sector – those that develop devices for either medical or recreational marijuana consumers.
– investing and finance sector – those that invest in the cannabis industry.
– real estate sector – those that own and lease commercial real estate properties to cannabis producers.
– secondary services sector – those that provide business services to marijuana growers and sellers.
– tech and media sector – those that provide technologies, software, and media for marijuana growers and consumers.
Which Marijuana Stocks Offer High Risks and Growth?
Companies that fall under the supply providers category offer the lowest level of risks and may appeal to most investors. However, they don’t have the growth potential of companies in other marijuana stock categories.
In terms of risks, the biotech category poses a very high level for investors. Companies in this category undergo product testing and are always considerate of possibilities such as clinic trial failures, regulation rejections, and disappointments during product launches.
How Can I Invest in Marijuana Stocks?
To start off, one may look at websites such as The Marijuana Index to check out companies that offer medical marijuana stocks. The website also offers details such as price, volume, and market cap.
Those interested in marijuana stocks may try to look at the major American stock exchanges: the New York Stocks Exchange (NYSE) and Nasdaq. Starting in 2018, companies offering marijuana stocks have started trading in these stock exchanges. The Cronos Group debuted on Nasdaq in February, while Canopy Growth Corp. joined the NYSE in May.
However, there still are some companies that prefer to trade in decentralized and less-regulated markets such as the over-the-counter (OTC) market. Preference for this kind of exchange market is due to the difference in the legality of medical and recreational marijuana utilization per state. OTC market participants can trade using any medium even without a physical location, though they can experience less transparency in transactions.
What Should I Watch Out for in Marijuana Stocks?
Investors should look into at least four important risks in trading marijuana stocks:
- Valuation risks – Because companies related to cannabis money are new in the stock exchange, they are not yet very profitable. This makes the valuation of marijuana stocks challenging.
- Dilution risks – Since there are legal barriers to medical and recreational marijuana in some states, some companies have limited options for funding and capital growth. Because of this, affected companies have to issue additional shares to generate funds, thereby decreasing the value of existing shares.
- Commoditization risks – Due to the legalization of marijuana sales, it has become a commodity for some states. And because of this, companies raise prices for medical and recreational marijuana — hence causing demand to fall, and affecting stock trading.
- Prosecution risks – Because not all states recognize the legal use of medical and recreational marijuana, engagement in this industry in some states is a legal risk.
Why Should I Consider Investing in Marijuana Stocks?
More states are starting to favor the legal use of medical and recreational marijuana. So far, more than half of the U.S. states joined the trend, with 9 states and Washington, D.C. legalizing recreational marijuana and 29 states legalizing medical cannabis use.
This growing reach of medical and recreational marijuana legalization has started to spark business interest in the industry. Investor interest in marijuana-related companies is increasing at a fast pace. In fact, the marijuana stock index has recently gained 71.49% compared to the previous year.
Where Should I Turn to for Advice About Investing in Marijuana Stocks?
Since investing in medical and recreational marijuana stocks is a form of alternative investment, it is best to seek the help of professionals who delve into similar matters. This is a relatively new territory so utmost caution is advised. There are several companies and firms out there that provide services to help you make informed and wise decisions. Your tax attorney or financial advisor can probably point you in the direction of these experts.
The growing interest in medical and recreational marijuana stocks may be tempting for most investors due to changes in the country’s legal landscape. However, it is important for investors to highly consider the risks in putting their money in this industry.
Have you tried investing in marijuana stocks? Share with us your experiences and insights in the comments section below.