How to Invest in Marijuana Stocks
The stock market is always looking for “the next big thing.” Analysts and investors are constantly trying to find the next emerging piece of tech, commodity, or even company. And one of the most intriguing sectors around can be found in marijuana stocks and the weed industry in general. But what is the best way to invest in marijuana stocks? And what should investors know before investing in marijuana stocks?
The thing about any emergent industry is that by its very nature, there are going to be a lot of question marks. After all, it’s emergent for a reason. Established sectors are easy to read because they have a significant track record and history that investors can look into if they want to know more about the sector.
In the case of pot stocks, that doesn’t really work out. I mean, the sale of recreational marijuana has been going on for a long time, it’s just that criminals don’t often keep the best financial records.
But now that legalized recreational marijuana seems closer every day, it’s time to consider the risks and the potential upside of getting into marijuana stocks, especially at such an early stage when a lot of information about the future of weed stocks is still very much in the air.
Marijuana Stock List: What You Need to Know
As with any industry, there’s a ton of information flitting about. But in the marijuana industry, you have all the standard and usual info, on top of the often-mystifying hype, and a lot of future projections that have yet to be justified.
The more you know about a stock or industry, the better. In this case, I’ll narrow it down to four important bits of information when it comes to marijuana stocks to watch.
1. Follow the News
Pot stocks are susceptible to the news now more than ever, especially as many countries seek to push for reform when it comes to the drug.
While many nations are at various points along the road to total legalization, the news is an important outlet that can help investors plan ahead and make the right moves at the right time.
Consider a big meeting of government officials where they are meant to comment on the state of marijuana in their own country. If you know that this meeting is on its way, you can anticipate that it will likely have a strong impact on the stock prices the next day.
If you have also done your research and know that the outcome is likely to engender positive or negative feelings toward marijuana in that country, then you can plan accordingly.
Believe that the outcome will be negative for pot? Maybe a good shorting is in order. Feel that it’s going to boost shares? Then maybe buy more ahead of the meeting. Think that it may hurt the stocks in the short run, but you wanna play the long game? Then perhaps wait for the news to hit and buy at a lower price.
It’s situations like this that can really give an investor the upper hand in the market, especially when the marijuana sector is subject to such wild swings as it has been over the past year, when the boom first began.
2. Follow the Politics
While politics can influence a great many stocks in a great many ways, marijuana stocks are in a unique position in that one whole side of their business is currently illegal in many parts of the world, and the vast majority of developed nations.
These stocks are special in that they are literally totally dependent on the political mood and trajectory, whereas it’s unlikely that, for example, something like Facebook Inc (NASDAQ:FB) will be banned anytime soon. Therefore, what you have is a situation in which politics exercise a more-powerful-than-usual hold over the industry.
As such, you can again make informed decisions by keeping up to date with what’s going on in the political sphere.
A good example comes from two neighbors—Canada and the United States.
Canada elected a liberal government that ran on a promise to make recreational marijuana stocks legal.
Having officially set a date for the summer of 2018, savvy investors were keeping a close eye on the political developments in Canada and were able to gobble up surging marijuana stocks that followed from the most recent announcement by the Liberal Party government about when marijuana would be legalized.
Of course, there are still a great many questions in Canada as to what that legalization will look like. For instance, how weed will be marketed is now under debate. But those seismic political events that set dates or assure investors that legalization is (or perhaps is not) coming can be a great way to see massive gains if played correctly.
On the opposite side of the fence, you have the U.S., which, under the administration of President Donald Trump, has taken a harder line on drugs and drug offenses. Which could naturally affect investing in marijuana stock.
Consider that U.S. Attorney General Jeff Sessions has made clear his plans to revive aspects of the much-derided War on Drugs that former president Barack Obama had sought to limit and, in certain cases, totally stop.
In a memo released on May 12, Sessions wrote that it “is a core principle that prosecutors should charge and pursue the most serious, readily provable offense. This policy fully utilizes the tools Congress has given us. By definition, the most serious offenses are those that carry the most substantial guidelines sentence, including mandatory-minimum sentences.” (Source: “Jeff Sessions Reinvigorates the Drug War,” The Atlantic, May 12, 2017.)
While not having a direct impact on marijuana legalization, the hardline tone that Sessions is adopting, at the very least, implies an administration that will strike a harsher tone when dealing with drugs.
That could spill over into marijuana legalization in the United States. For the moment, it has largely been handled by individual states, but the federal government certainly has the power to overrule state laws if it so chooses.
3. Find a Company with a Competitive Advantage
So early on in the industry, as hype carries many companies on their way to strong gains, it’s important to look for a marijuana stock that actually has something to offer beyond just hype.
As with most booming industries, a lot of duds are bound to sneak in and disappear when the hype dies down. We don’t want to put our money into a dud. And that makes it even more important to know all you can about a company before investing.
Take, for instance, Aphria Inc (CVE:APH, TSE:APH).
Having shown over 300% growth in the past year, shares of Aphria have been on a bit of roller coaster ride in recent months.
But, as many famed investors have said over the years, predicting day-to-day stock movements is akin to gambling, while looking for longer trends in years to come is a smarter way to invest.
Which is to say that, when the industry is hit, Aphria will be hit as well. But, aside from those daily dips and bumps, Aphria has a competitive advantage that can help it outlast its rivals.
Aphria grows its marijuana in a greenhouse, which can help the company avoid massive crop failures, as well as allow it to produce at a cheaper price. Of course, it comes at the expense of having a smaller and more predictable yield, but it’s still a way of doing business in the marijuana market that will likely aid APH stock in the long run.
Companies that have those little innovations and efficiencies are more plentiful than you think, and require a little bit of legwork to find, but can often be worth it when it comes to returns.
4. Do Your Research
The connective tissues in each of these tips is for you to research, research, research. Knowing the company, the industry, the politics, the news, anything can help give you an advantage that will let you fare better with your investments.
While this hardly only applies to marijuana stocks, it is especially important in the weed industry because of the volatility and the number of questions floating around.
Conclusion and Marijuana Market Crash
There’s a lot of risk in the marijuana market at the moment, but so too is there a lot of potential.
Being as new and driven by hype as it is—not to mention highly vulnerable to political shifting—the industry is still a very lucrative one for investors who know how best to play the market.
A marijuana crash is also possible, however, so you might want to hedge your bets before going all in on pot.
The key for investors would be to find a company (or multiple companies) that they like, put money in it, and then just sit back and watch.
Between keeping an eye on the news, the politics, and the companies themselves, investors will have a lot to focus on. But that’s the best way to make money on the market. There’s no magic shortcut. Like many things in this life, the key is diligence and hard work, and that need is only amplified when investing in marijuana stock.