Cannabis, commonly known as marijuana, has become an investment opportunity in the last decade. You might have heard about the legalization of cannabis in various states of the US for medical and recreational purposes. That’s why people are buying cannabis stocks and diversifying their assets.
You can also invest in cannabis stock through a brokerage account. However, you must know about the market’s volatility and other risk factors while investing your money. Just like other industries, companies dealing in the marijuana industry are also volatile. That’s why you must have deep knowledge about the share price and market insights.
This article will guide you on how to buy cannabis stocks and the risks associated with this venture.
Steps in Buying Cannabis Stocks
The process of buying cannabis stocks is simple. However, industry research and market trends are the prerequisites if you want to invest. Interested people either open a brokerage account or hire a financial advisor.
The latter option is easier as you only pay the financial advisor’s fees, and they deal with each legal and financial formalities. They also guide you about the ongoing stock worth and whether to invest or not.
But if you want to independently invest in marijuana stocks, consider following these four steps.
1. Know the Marijuana Types
There are two general types of marijuana:
Medical marijuana is legal in 36 US states. You can collect it from dispensaries in various forms, like ground cannabis. Similarly, you can find THC tinctures from licensed stores to reduce inflammation.
The use of cannabis in the medical industry is not new. Due to its euphoric effect, doctors have been using marijuana on cancer patients to reduce chemotherapy’s side effects. Cannabis also treats other illnesses, like nausea, anxiety, and insomnia.
On the other hand, recreational marijuana or cannabis is legalized in 19 states. You can’t find it in stores except for licensed dispensaries, having a government-issued certificate. This marijuana is utilized in different forms.
For example, you can smoke weed via pipes, prepare weed gummies, and consume marijuana using tinctures.
2. Select the Right Marijuana
You have already read about how widely marijuana is used in the medical industry and as a recreational drug. That’s why it’s important to do a lot of research before deciding where to invest your money in cannabis stocks.
Although the investments look affordable, cannabis companies still lack enough information to make the right move in buying the stocks. So, you must look for the following factors to gather information:
- Stock listing – You can validate the stock’s worth by checking whether it’s listed on the US stock exchanges, like NASDAQ and OTC. The listing of cannabis on the stock exchange gives much information about its authenticity. Remember that over-the-counter CBD or THC products are risky because they don’t comply with the stock exchange’s requirements.
- Analysts’ reviews – Check the reviews from the top stock exchange analysts. Listen or read what they say about cannabis stocks. Their reviews give clear information regarding the legitimacy of the cannabis stocks’ investment opportunities. If you read something money-repelling, you should pause and wait for better opportunities.
- Products’ reputation – Conduct thorough research about the product available in the stock market. Read about the company that’s producing or selling marijuana. The more information you acquire about the product, the more informed decisions you can make regarding the investment.
- Market cap – Market capitalization is strong evidence of the legitimacy of stock available for investment. The value of the market cap ensures how well the stock is doing in the market. You can also prepare a risk assessment plan after knowing the market cap of cannabis stocks.
- Financial background – Search for the company’s financial history that deals with cannabis production and its stock investments. You can find the relevant information on the company’s website. Since these are public limited companies, they must share the required financial information on public platforms.
You can contact farmers who grow in-house weed and sell it to suppliers and vendors. They will also guide you about the right type of marijuana you can invest in.
3. Open an Online Brokerage Account
Opening an online brokerage is the fastest and simplest way to invest in cannabis stocks. You must fill out a form and submit your affordability range. After that, you can fund your account and select any investment options.
Remember that brokerage accounts vary from service to service. Therefore, you must consider the features that will help you in making informed investment decisions.
For example, you might like to use market insight tools or mobile trading applications. That’s why you must wisely choose the brokerage with the relevant services.
4. Make the Purchase
After gathering information and opening a brokerage account, you must purchase suitable cannabis stock. You will get instant updates on your registered device regarding the stock prices. You can also check the market trend to predict future prices.
You must keep an eye on the company’s updates related to cannabis products.
Risks in Buying Cannabis Stocks
Here are the two biggest risks associated with cannabis stocks.
Federal laws regarding cannabis are not the same worldwide. Although you focus on domestic competition, it’s important to know what countries have legalized cannabis to quickly move your investment to other options.
Cannabis-related laws in the US might also change, affecting stock prices. Federal law is a major factor that affects the demand and supply of cannabis products. That’s why you must stay updated about the laws and regulations while buying cannabis stocks.
Less Financial Aid
Due to high volatility, public limited companies create risky investment opportunities in cannabis stocks. You might also find many financial advisors avoiding getting involved in cannabis investments.
The Securities and Exchange Commission (SEC) has notified investors about potential fraud in this industry. Many banks and other financial institutions are not facilitating clients who want to invest in cannabis stocks. Therefore, you must be wary of all the risks while buying cannabis stocks.
The industry is still growing, and cannabis companies are expanding. Many companies have listed themselves on the stock exchange, attracting authentic investors for business expansion. That created a lot of investment opportunities.
So, you must thoroughly observe the stock market of cannabis companies and make appropriate risk plans. Only then can you be in a win-win situation.