The marijuana market is one of the more volatile ones around. Marijuana volatility, after all, is one of the reasons you’re seeing such immense growth in the industry…but also one of the reasons so many investors are concerned about how to invest in pot. With that being said, what’s the best way to play marijuana volatility?
The first thing to remember is to not panic. We’re going to see big spikes in gains as the summer progresses and Canadian marijuana legalization nears…but those gains are often going to be somewhat offset by corrections.
A perfect example is last week, when Canada officially approved its marijuana legalization bill.
Gains soared as high as 20% for some companies by mid-week, only to fall back to 10% by Friday.
In its short lifetime, the industry has been defined by these aggressive fits and starts.
Of course, it has so far panned out well for marijuana investors, with companies showing explosive gains over the past few years. But it’s a game that requires patience and timing.
The key takeaway is to not jump ship the moment a stock begins to fall—unless you’re a day trader, that’s a recipe to lose big on your investment.
While some stocks may have to be ditched as time goes on, a good number of marijuana stocks are projected to see gains long term as more markets open up and more industries try to gain exposure to cannabis, like we’re seeing out of alcohol makers.
My projection is that marijuana companies will be flying high, so to speak, as Canadian marijuana legalization arrives, but that the explosive growth will be followed by a correction as investors once more grow skittish.
Holding long-term is one way to play that coming correction, as the stocks will likely rise following the drawback, or getting out right before the bust could be a way to win big in the short term. In either case, panic selling is a surefire way to blow an investment.
How to Invest in Pot Stocks
For those considering long-term investing (my preferred investment philosophy in the age of machine day-traders and algorithmic superiority), Canopy Growth Corp (NYSE:CGC) offers one of the more reliable options on the marijuana stock market.
The company is up 40% on the year and that’s despite a massive correction that rocked the industry as far back as January, showing once again how losses in the marijuana industry are all part of the process—and usually temporary.
Canopy Growth’s size, business savvy, and market-cap dominance have made it one of the industry’s strongest performers, and one of my favorite marijuana stocks.
Marijuana volatility can be frightening. Seeing your investment drop double-digits in a day is enough to make most investors’ boots quake. But the key is to roll with the punches and know that following most gains there will be drawbacks.
While the falls are usually longer than the often short, explosive rises, they’re also usually shallow and rarely cancel out the progress made in boom times.
Marijuana volatility requires two things to be played right: patience and conviction.