Cheap Marijuana Stocks to Consider in the Face of Market Volatility

cheap marijuana stocks
iStock.com/p_saranya

Cheap Marijuana Stocks

The marijuana market is full of opportunities, but not all of these opportunities are created equally. From the bigger companies to the cheap marijuana stocks, each investment carries with it a unique set of challenges and benefits.

So how do you go about selecting the best marijuana stock?

Let’s examine the pros and cons of buying cheap marijuana stocks—especially in the face of high marijuana market volatility.

Small-Cap Marijuana Company Risks

Are small-cap marijuana companies risky? In a word, yes. But that leaves out a whole lot of context.

Advertisement

You see, most marijuana investments carry with them at least some inherent risk, more so than the average investment. That’s because you’re essentially investing in an emerging industry.

What this means is that the opportunity to see massive growth in your investment is more present in this industry than in most.

On the flip side, you’re taking on more risk due to the nature of the marijuana sector. After all, the drug is still largely illegal around the world.

Even in places where it is legal—like many states in the U.S.—complicated interplay between different levels of government means that nothing is truly settled surrounding pot, at least in America.

With all that uncertainty surrounding the industry—not to mention the hype and excitement that can drive stocks higher—of course you’re going to get a more volatile market.

Cheap marijuana stocks are more susceptible to these swings for a number of reasons.

For one, their smaller size means that it takes fewer trades at smaller volumes to have a significant impact on the stock price.

Another is that there’s still a lot of concern surrounding some of these small-cap marijuana companies.

While larger companies often gain the label of legitimacy due to their size and presence in the market, companies operating outside the spotlight tend to be regarded with more skepticism.

Due to that concern, cheap marijuana stocks are often the first to be abandoned in a market downturn. And, in concert with their smaller size, this can lead to higher ups and downs for these small-cap marijuana companies.

But when it comes to selecting the best marijuana stocks, staying away from small-cap marijuana companies closes you off from huge potential gains—often bigger than what the more established companies could hope to deliver.

How to Identify the Best Marijuana Penny Stocks

The thing about the marijuana market is that it’s not at all impossible for a marijuana penny stock to one day come to dominate the market.

I’ve long written about Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB). The company, a short year ago, was a marijuana penny stock.

Now it sits atop the market, having just completed the biggest acquisition in the industry’s history.

So there is a lot of long-term potential in cheap marijuana stocks.

When selecting the best marijuana stocks, I have a few simple rules that I would caution investors to follow.

The first is that you want a company that is listed on a reputable stock exchange.

That doesn’t mean the New York Stock Exchange (NYSE) or the Nasdaq (no such marijuana penny stock exists there). You’d like to see the best marijuana penny stocks on at least one of the major Canadian exchanges.

Otherwise, you’ll be forced to do your trading via the over-the-counter (OTC) markets, which adds another layer of risk to your investment.

You see, there’s very little vetting on the OTC markets, whereas Canadian exchanges will at the very least give you peace of mind that the company you’re interested in isn’t some outright scam.

Another rule I like to apply to cheap marijuana stocks is to look for companies that offer something new.

Whether it’s a growing international presence, a way into untapped markets, or a focus on a subsector (like cannabis oil), these are solid indications that a particular marijuana penny stock has its sights set on growth.

Best Marijuana Penny Stocks to Watch

With all that said, let’s take a look at two of my favorite marijuana penny stocks. These stocks are both under $5.00 a share and are poised for gains down the line.

Chart courtesy of StockCharts.com

1. CannaRoyalty Corp

The first cheap marijuana stock I’d consider looking at is CannaRoyalty Corp (OTCMKTS:CNNRF, CNSX:CRZ).

CannaRoyalty stock is cheap, at just under $4.00 per share, and has a bright future.

First, the company’s business model is unique. CannaRoyalty invests in marijuana companies in exchange for a share of their profits once they begin selling their cannabis.

It’s a unique approach that has worked well for mining companies.

Another benefit is that CannaRoyalty provides investors with exposure to the U.S. marijuana market.

CannaRoyalty is both a cheap medical marijuana stock and a cheap recreational marijuana stock, since it is invested in U.S. companies that provide both types of marijuana products.

With few other options to access the U.S. cannabis market, CannaRoyalty stock is one of the few—and strongest—options around.

The stock is up by over 30% on the year, and I expect that to grow.

2. National Access Cannabis Corp

Another one of the best penny stocks to watch is National Access Cannabis Corp (OTCMKTS:NACNF, CVE:META).

The National Access stock price has jumped by over 700% in the past year, making it truly one of the most impressive companies in an already impressive market.

This year, however, has been less kind to the company, with the stock unable to make significant gains so far. Nevertheless, my National Access stock forecast is bright.

The company is headed by a former drug-squad leader with the Royal Canadian Mounted Police (RCMP), which is sure to pay dividends as Canada makes its way through the process of marijuana legalization.

With legalization likely to hit this summer, National Access is in a unique position to take advantage.

The company is also in the habit of making bold moves that could pay off with big dividends down the line, like its current proposal to link up with The Second Cup Ltd (OTCMKTS:SCUPF, TSE:SCU), a coffee chain in Canada, to change some stores into dispensaries when marijuana is legalized.

Analyst Take

Cheap marijuana stocks are risky, but few stocks will have as high a potential for massive payoffs.

Not to mention, the risk is overblown, with many marijuana penny stocks having since grown to become industry giants.

For investors looking to make smart buys, considering the marijuana market volatility, there are many good options for long-term gains.