How to Invest in Marijuana Stocks
Now that California, the most populous state in the United States, has legalized the recreational use of marijuana, pot is legally sold along the entire west coast of North America.
In 2017, sales of legal marijuana in the U.S. went up by 30% from $6.7 billion in 2016. They are expected to go up by another 45% in 2018 and hit the $17.0 billion mark by 2021.
No wonder people are keen to know how to invest in marijuana stocks. But, given President Donald Trump’s crackdown on weed, should you consider investing in marijuana stocks?
Should You Invest in Marijuana Stocks?
Investing in marijuana companies is not a bad idea. The Cannabis Stock Index rose 88.8 percent in 2016 and 91.8 percent in 2017.
But before you jump in, you should be cognizant of the challenges of investing in marijuana companies. In the following sections, we’ll cover what you need to know if you’re looking to add some greenery to your investment portfolio.
Beginner’s Guide to Pot Stocks
If you want to invest in American or Canadian marijuana companies, you can either opt for penny stocks on over-the-counter stock exchanges or for more established stocks on major exchanges like the Toronto Stock Exchange (TSE), the Nasdaq, or the New York Stock Exchange (NYSE).
Both types of stocks can also be purchased through online brokerages.
Penny stocks may be cheap, but they come with the risk of not knowing past performance. These stocks are very volatile, and a sudden surge in buyers or sellers can cause wild price fluctuations.
According to Troy Dayton, CEO of The Arcview Group, one of the first and largest cannabis angel investment groups in the country, “Aside from cryptocurrency, there is simply no other industry changing as rapidly or as unevenly as the cannabis sector.” (Source: “NEW REPORT: Legal Marijuana Sales to Grow 33% to $10 Billion in 2017,” GlobeNewsWire, December 6, 2017.)
Your Investment Could Result in a Pot of Gold or End Up in Smoke.
When Jason Spatafora, known as the “Wolf of Weed Street,” first started investing in 2013, he dabbled in penny stocks. He bought 10,000 shares of marijuana penny stocks for $500.00. Two days later, the stocks’ value went up 50%; two days after that, the stocks tanked.
Since marijuana penny stocks are so cheap, one might be pardoned for ignoring the volatile nature of the cannabis industry. However, once in, there is a need for due diligence.
You must remember that, although 29 U.S. states have legalized medical marijuana and eight of them (Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, and Washington) have also legalized recreational use, marijuana is still illegal under U.S. federal law.
With Uncle Sam frowning on marijuana, most banks are unwilling to loan money to marijuana companies. So the first thing to do is to confirm where is it legal to invest in the marijuana industry.
Many American investors are sending their dollars north of the border because marijuana will become completely legal in Canada in July. But you don’t need to go that far.
Making Money off Marijuana Without Investing in Weed
You can make a huge killing from the marijuana industry by investing in ancillary companies that don’t grow weed or deal with massive overhead or the threat of a federal crackdown.
Kush Bottles Inc (OTCMKTS:KSHB) is a case in point. They just make the packaging for weed.
Other ancillary companies make vaporizers, irrigation lines, or software. These companies might well be the best way to invest in marijuana stocks and still be on the right side of the law.
However, if you are keen on investing in core marijuana stocks, it’s a good idea to take some time to choose between medical marijuana stocks and recreational marijuana stocks. Then, when you have made your decision, the next step is to figure out how to invest in medical marijuana or how to invest in recreational marijuana.
There is also a third option, marijuana producers stocks, which allows you to do both (although this is not strictly legal in the United States).
Medical Marijuana Stocks
Biotech is a major part of the marijuana industry. Pharmaceutical companies like GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), Cara Therapeutics Inc (NASDAQ:CARA), AbbVie Inc (NYSE:ABBV), Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE), and Insys Therapeutics Inc (NASDAQ:INSY) are using endocannabinoids to treat the pain of cancer and other conditions, like epilepsy.
There are more than 90 registered companies in Canada that produce weed solely for medical purposes.
While all of the companies have potential, a few of them, like Insys, actually lobby against marijuana. Insys promotes the drug “OxyContin,” and the rapid rise of legal marijuana could hurt OxyContin’s sales.
The Best Marijuana Stocks in 2017
You could definitely profit from marijuana stocks, as you can see in this list of the best marijuana stocks in 2017.
- Village Farms International Inc (TSE:VFF): Stock price increased by 414.2%
- Emerald Health Therapeutics Inc (CVE:EMH): Stock price increased by 299.8%
- Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB): Stock price increased by 221.5%
- Cronos Group Inc. (NASDAQ:CRON): Stock price increased by 214.8%
- Aphria Inc (OTCMKTS:APHQF, TSE:APH): Stock price increased by 206%
- Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED): Stock price increased by 150%
- Arena Pharmaceuticals, Inc. (NASDAQ:ARNA): Stock price increased by 119.%
Marijuana Producers Stocks
You may have heard about marijuana producers stocks when Colorado first legalized the sale of recreational marijuana. At the time, medical marijuana was already legalized and, when the recreational marijuana opportunity sprang up, medical marijuana companies thought it would be a good idea to kill two birds with one stone.
Although they were only licensed to sell marijuana for medical purposes, they decided to stretch their licenses a bit and tend to the recreational market too. Within a few months, there was a surge of dispensaries that were doing exactly what they were not supposed to do: sell marijuana for recreational use.
These marijuana producer stocks are the most publicized of marijuana stocks, and for good reason: they have made pot-loads of money. But that was during the Barack Obama reign.
With Trump and his attorney general Jeff Sessions cracking down on cannabis, marijuana producer stocks have been coming under close scrutiny and their game might well be blunted.
What About Weed Mutual Funds?
There are no marijuana mutual funds, but there are two exchange-traded funds (ETFs): Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) and ETFMG Alternative Harvest ETF (NYSEARCA:MJ).
While both of these marijuana ETFs have been trading for some time now, I Horizons could be the better option. It holds shares from more than 25 companies and is already up 121% since its inception in April 2017.
However, keep in mind that most of those 25 companies are Canada-focused. For those looking for exposure to the U.S. market, there aren’t any ETF options (as of yet).
Is This the Right Time to Jump Into Marijuana?
On January 4, 2018, Attorney General Sessions over-rode a memo from the previous federal government that allowed individual states to determine their own policies for prosecuting marijuana crimes.
While this has put a spanner in the works of the marijuana revolution, experts say it doesn’t mean it’s a bad time to invest. They base their opinion on the fact that most legitimate investment opportunities at the moment are in Canada, which is opening its doors to legal weed.
Then there is another a way out by investing in companies that are related to marijuana but do not produce or sell marijuana itself.
I believe that now is actually a good time to invest in marijuana stocks because their prices have taken a slight tumble in the past few months. And, as U.S. states fight against the federal government’s stance on marijuana, the stock prices will likely resume climbing.