Beginners Guide to Investing in Marijuana Stocks
Cannabis is one of planet Earth’s most popular psychoactive substances. The plant has been used by Homo sapiens for many thousands of years for religious ceremonies, pain relief, reducing stress, and having fun.
Marijuana has been internationally criminalized for much of the past century. While some countries have opened their governmental arms to the plant, the majority haven’t been so kind. In the past few decades, the United States has slowly warmed up to cannabis.
Due to the widespread legalization of cannabis in the United States, major companies have capitalized on the early stages of the quickly growing marijuana industry. Although the industry has grown widely in recent years, there’s still enough time to invest in marijuana stocks and be considered an early adopter.
A Brief Background of Cannabis in the United States
Although alcohol, coffee, and tobacco have long been legalized in the United States, the country has criminalized other psychoactive drugs for decades. Cannabis has been illegal since 1937, the year former U.S. President Franklin D. Roosevelt approved the Marihuana Tax Act.
California became the first state to legalize medical marijuana in 1996. Since then, 33 states have legalized cannabis for medical use. Starting with Colorado and Washington in 2012, 11 states have made the drug legal for recreational use.
In early 2018, the U.S. Securities and Exchange Commission welcomed the United States’ first publicly-traded cannabis company, Cronos Group, to the NASDAQ. Since then, at least two dozen other marijuana companies have been listed on the New York Stock Exchange or the NASDAQ, the two most prestigious stock exchanges in the world.
Since you’re here, it’s obvious that you’re interested in investing in marijuana stocks. Whether you use the leafy green substance or not, many people feel drawn to the cannabis industry because they don’t support criminalizing cannabis. By investing in cannabis companies, you can help dismantle the criminal justice complex across the United States.
In general, there are two main areas of cannabis products: those that contain THC and those that don’t. The overwhelming majority of marijuana products that don’t contain THC are high in cannabidiol (CBD). CBD, oftentimes the second-most-prevalent cannabinoid in cannabis plants, isn’t psychoactive like THC. In 2018, the U.S. Congress passed the Farm Bill, a law that allowed the interstate trade of cannabis that contained no more than 0.3% of THC by volume.
Commonly known as hemp, CBD products are sold throughout the United States. The CBD industry has far fewer regulations than the rest of the cannabis industry.
If you’re wondering how to invest in marijuana stocks, the experts at Money Morning indicate that “the U.S. CBD market will hit $2.1 billion in sales in 2020.” However, this pales in comparison to the greater marijuana industry.
For long-term growth, you should avoid investing in companies that only offer CBD products. These goods are sold in head shops and gas stations in an unscrupulous manner. They’re often marketed alongside “legal highs” and other often-scrutinized products. If you find a CBD-only company in its infancy, investing could reliably offer short-term profits. However, in general, you should stick with companies that don’t specialize in CBD.
Upsides of Investing in Marijuana Stocks
Like all financial instruments and investment opportunities, cannabis stocks are risky. However, they offer benefits you won’t find in most other investments.
The biggest upside of investing in cannabis stocks is the industry’s potential. Although cannabis has been legalized in certain parts of the United States for over two decades, the industry is still due to grow substantially. Look at the American alcohol market, for example. Last year, the industry raked in more than $250 billion. The current cannabis industry isn’t worth nearly that much yet.
You may also benefit by investing in American cannabis stocks, not their Canadian counterparts. Cannabis is still illegal at the federal level in the United States. By going American, your long-term profitability is undoubtedly higher.
Risks Presented by Cannabis Stocks
On the downside, the cannabis industry could change at any time. Countless politicians are still opponents of cannabis, both for medical and recreational use.
Many companies struggle to get funding from banks thanks to their cannabis connections. These relations cause them to get low credit ratings, reducing individual companies’ prospects of growth.
How to Invest in Marijuana Stocks
No matter what companies you consider investing in, steer clear of penny stocks. These are associated with high risk levels and the potential of exit scams.
Always get help from an investment professional who’s already familiar with cannabis investment opportunities. Make sure you thoroughly vet them and their licenses before investing.
