Marijuana and the stock market are two words that many people don’t think of putting together. As more and more countries follow Canada’s lead and legalize cannabis for both medical and recreational use, it only makes sense that people are starting to look at marijuana stocks as a way to diversify their investment portfolios.
Cannabis stock is a unique option and is not ideal for all investors. Since the marijuana market is still young, it continues to be quite volatile, making it important that even seasoned investors do their research before investing.
Dive into what makes cannabis stocks unique, the types of marijuana companies you can invest in, and what to look for when choosing the right marijuana stock to add to your portfolio.
What Makes Marijuana Stock Unique?
Before anyone purchases any type of stock, it is important to do the proper research to ensure it is a good investment. Investors typically consider many factors before purchasing stock in a new company, including:
- The company’s earning history. A company whose earnings regularly increase, even by small amounts, is a good sign that the company is stable, and its stock will likely do well for investors in the long-run.
- How it compares to its peers. See how its peers are performing and if it is following in line. A company that is doing poorly when its peers are growing may be a red flag for investors.
- Look at its growth strategy. Does the company have plans to grow? If so, these plans will likely be posted on the company’s website. See if it plans to expand into other markets. If not, the chance of its stock price increasing may be slimmer.
Although these are all important factors for investors to look at when purchasing stock, these can look different when it comes to marijuana stock, making it one of the main reasons investing in cannabis is a unique option.
Because legal marijuana is a relatively new market, many companies are posting net losses when it comes to revenue. This would be a red flag in traditional markets, but when it comes to stock in weed, not so much. Those considering investing in weed should instead look at if the net losses are improving and the trends it has experienced over the last year. This can give potential investors an idea about what to expect from the weed company’s stock in the long term.
Comparing cannabis stock to its peers is something potential investors can still look at. But there are different types of companies that are a part of the cannabis investment world. Make sure you compare similar companies with similar companies.
A cannabis company’s growth strategy is important for investors to look at. As marijuana becomes legalized in more places and for more uses, how will the company plan to respond? Are there plans to move into other markets or even other countries?
Those looking into purchasing weed stock should also take a look at the company’s leadership team. Do they have experience? How have the companies they managed previously performed?
Reasons People Invest in Marijuana
There are many reasons people may choose to invest in marijuana in the stock market. And the reason may help investors determine which stock to add to their portfolio.
For seasoned investors, many see weed stocks as an opportunity to grow their investment for the long term. Since this market is new, they likely hope they can purchase their shares at a lower price and hold on to them for years while the market grows. After a while, these investors will plan to sell their shares at a higher price, making the initial investment pay off nicely for them.
For newbies to the stock market, cannabis stocks also offer a cheap way to get into a market that is expected to continue to grow early. Since the stocks are lower in price, new investors may see this type of stock as a way to get involved in the market without having to have large amounts of money.
Other people may choose to invest because they hope to impact the future. Medical marijuana is a growing field, with science continuing to research the effects cannabis can have on the body and new ways to use it. These investors are using their investment in medical cannabis as a way to support this advancement and make a better future.
Some Canadians may simply be weed advocates and enthusiasts who just want to invest in a product they believe in, like, and enjoy using.
Whatever your reason for investing in cannabis, make sure you do your research. This will ensure you choose a cannabis company to invest in that meets your values and helps you accomplish your goals.
Different Types of Marijuana Companies and Stocks
The marijuana industry is made up of different types of companies, and it is important to know what type of company the stock you are considering purchasing. Common types of cannabis companies include:
- Biotech and research companies. These companies often focus on researching the use of medical marijuana. These companies may show more earnings since marijuana is not their only source of revenue.
- Ancillary produce and service companies. These do not grow or distribute marijuana themselves. Instead, they provide products to help growers and sellers. For example, they make lights growers use when growing weed plants or the packaging sellers use to ship their product to consumers.
- Growers and resellers. These are the cannabis companies that actually grow, harvest, and sell marijuana. They may sell to online cannabis retailers or medical marijuana providers.
By knowing the type of cannabis company you are considering investing in, you can better gauge how it will perform and make sure it meets your investment criteria and matches your values.
Cannabis Stocks to Watch in 2021
Investors may be surprised to discover the number of cannabis stocks available for people to purchase. Knowing where to start can be overwhelming. Consider starting your search with these stocks, which have been off to a strong start in 2021.
- Neptune Wellness Solutions, Inc. A fully integrated and diversified health and wellness company, Neptune Wellness Solutions, Inc. specializes in cannabis and industrial hemp extraction in addition to nutrition products and even pet supplements. It is also one of the fastest-growing stocks on the market right now. For those wanting to ease some of the risks of investing in just marijuana stock, Neptune’s diverse portfolio makes it an appealing option.
- Village Farms International, Inc. A Canada-based company, Village Farms International, Inc. is an agricultural producer that grows vegetables, such as peppers and cucumbers. It also produces cannabis products. Like Neptune Wellness, Village Farms International offers investors the opportunity to invest in cannabis without directly investing in it. This can provide the company with better profit margins, giving some investors a sense of security about their investment.
- OrganiGram Holdings, Inc. Another Canadian company, OrganiGram Holdings, Inc., is a licensed producer of medical and recreational marijuana, with more focus on the medical side. For those interested in investing in cannabis for its potential in the medical field, OrganiGram Holdings is a good option.
- GW Pharmaceuticals. GW Pharmaceuticals has worked to develop and commercialize plant-derived cannabinoid therapeutics and has done so for more than 20 years. Although the company is still losing money, those losses are decreasing in size. GW Pharmaceuticals is a good option for those who are ready to invest in cannabis long-term.
- Constellation Brands. For those who may not be ready to invest in weed directly, Constellation Brands is a good choice. It is known for producing beverages such as wine, beer, and spirits and has more than 100 different drinks in its portfolio. In 2017, Constellation invested in Canopy Growth, which is a Canadian cannabis producer. This sets the stage to move into cannabis drinks in the coming years. The increasing interest in marijuana drinks and THC beverages may play in Constellation’s favour in the years to come.
- NIC, Inc. This company offers investors the opportunity to invest in weed in an indirect and unique way. NIC offers technology services, focusing on government sites and secure payment processing. Part of its services includes helping governments regulate the marijuana industry. For those not wanting to invest in weed directly and who are tech-savvy, NIC allows you to combine two passions and make a one of a kind addition to your investment portfolio.
Keep in mind that the stock market is always changing and that cannabis stocks have a reputation for being quite volatile. Be sure to do thorough research before investing. You can also seek advice from your financial advisor or stockbroker before making any significant changes to your investments.
The Pros and Cons of Investing in Cannabis
Like all stocks, cannabis stocks come with their own benefits as well as things to keep in mind. By knowing the pros and cons, investors can make an informed decision about whether not this type of investment is a good option.
Some pros of investing in weed include:
- It allows users to get into a new market early, which could potentially pay off in the long run.
- It is a growing market, which makes it an appealing long-term investment option.
Some cons of getting into the weed market include:
- It’s volatile. The weed market continues to perform erratically, making it a risky investment for those with a low-risk tolerance.
- It is not legal everywhere. Changing regulations to weed in countries across the world can also make weed a risky investment.
How to Get Started Investing
For those who are interested in getting involved in the stock market, whether that includes cannabis stock or not, it can be difficult to know how to get started. Thankfully, new investors don’t have to figure everything out all on their own (though that certainly is an option).
A stockbroker or financial advisor can help newbies get started in the stock market. They will discuss the assets you have, how much you want to invest, determine your risk tolerance, and help you pick the stocks that will help you create your portfolio.
Unfortunately, advisors to help you navigate the stock market are not free. Before choosing an advisor or broker to work with, make sure you understand their fees. Do you pay hourly, or do they take a percentage of your earnings?
There are professionals out there to help investors get started in the market. There are also online options that allow users to invest and remain hands-off. Called robo investors, they invest money for you.
Keep in mind that, like their human counterparts, many robo investor services also have fees, though they may be less than a visit with an advisor in person would cost. Read the fine print when signing up to make sure you understand the fees and penalties. Also, learn about your withdrawal options should you change your mind about investing.
Should You Invest in Cannabis?
Whether or not investing in cannabis is a good idea will depend on the person and their individual situation.
Because cannabis in the stock market continues to be quite volatile and unpredictable, it may not be a good option for beginner investors who do not have a lot to lose. However, experienced investors may find it a good long-term investment opportunity, banking on the increased legalization and growth of the industry.
New investors who are passionate about weed want to get into a growing market early. They are able to play the long game and may find cannabis stocks a good option.
Finally, keep in mind it is important to not put all your eggs in one basket, as they say. Diversification is key when it comes to creating a well-performing portfolio.
For those who do invest in cannabis stock, make sure it does not make up the bulk of your portfolio. As part of a diversified portfolio, marijuana stocks can make a great addition.