Going Green: Your Guide to Investing in the Cannabis Industry
Why Weed?
Even though marijuana was recently legalized throughout some parts of the United States, recreational marijuana is legal in only 19 US states. Since then, the first investable American cannabis industry opened in January of 2014. With that being said, American marijuana stocks may come with quite a bit of risk since the industry is relatively new and highly volatile. However, the greater the risk, the higher the reward right? Well, that very much could be possible for this emerging industry. For people who are willing to take that chance, it could offer some amazing long-term gains. Ever since the steady increase of recreational marijuana has been legalized, the industry has grown significantly. For example, 2020 was a great year for the cannabis industry. Sales reached $17.5 billion in the US which was almost double than the previous year! Not only that, but by the end of 2022, sales are expected to increase to $32 billion and reach $43 billion by 2030.
How Can I Get Started?
Since there are still restrictions on the product, here are a couple of tips and some advice to help navigate you through the marijuana industry.
The main thing is… *Drumroll Please*… Research! Research! Research!
Just like any other stock, having a good understanding of the company and even the different types of marijuana will help to make a more informed decision. For example, there are three different types of companies that operate in the cannabis industry. They are cannabis growers and retailers, cannabis-focused biotechnology companies and ancillary product and service providers. Other helpful factors to know are the management team, the company’s growth strategy and competitive position, and financials. If the company grows marijuana, try researching the cost for producing and selling the cannabis, as well as the demand for their products.
Other things to consider is the type of marijuana you would want to get involved with. Medicinal marijuana is legal in 36 states, the District of Columbia and more than 40 countries. This needs to be authorized by a medical provider. On the other hand, recreational marijuana is legal in only 18 states as well as the District of Columbia and does not need any type of prescription.
A good place to start your research is the Invstr Weed Index Profile (#IWIX) which offers a cross- section of 23 major players in the industry. You can also track the volatility-weighted U.S. and Canadian stocks which may be helpful when picking where to invest.
If you are familiar with the cannabis industry and want to invest in the stock, here are some marijuana stocks to check out:
Canopy Growth Corporation: (Cannabis grower)
Village Farms International: (Biotechnology)
Cara Therapeutics: (Biotechnology)
GrowGeneration Corp. (Ancillary providers)
There are also other companies that are not specifically cannabis related but are associated with the industry:
Altria (MO)
Scotts Miracle-Gro (SMG)
If you are not comfortable with investing in cannabis stocks, there are industry-related ETFs which add a diversification perk as opposed to investing in specific marijuana stocks. However, if one stock drops, so does the whole fund, but potentially by less as you are diversified in other companies. The opposite is true as well.
The Virtual Plug
As if stocks and regular EFTs weren’t enough, the metaverse is also opening up ways to get involved in the growing green industry. Like for example, did you know that Snoop Dogg recently announced his partnership with MOBLAND, which is a mafia-themed metaverse game, to introduce the first ever meta-verse digital weed farms as NFTs? Well me neither!
Not only that, but other cannabis companies are also looking for ways to get involved in the meta-verse. As opposed to the U.S. markets which have many rules and regulations about weed, the metaverse has no official rules. This can be a great thing for the marijuana market! Companies have already started to establish virtual stores to sell merch and other NFTs. Higher Life CBD dispensary partnered with Saucey Farms & Extracts to open a store in Voxels and plans to sell cannabis in the metaverse within the next five years.
Understanding the risks
There are reasons why this industry has limited investors. One of the major risks that comes with investing in the cannabis industry is the high volatility. Many experts suggest having 5% of investments as alternative assets such as marijuana. Having other financial investments to meet your goals is helpful so you have discretionary money to spend. Other risks include the government and legal regulations that put a damper on the potential of the market. If the government ever decides to ban marijuana, any company that is associated with the cannabis industry would get crushed.
Finals Thoughts
All in all, the cannabis industry is an exciting and emerging new market. Even though there is high volatility, this may be an industry to watch especially if the US decided to federally legalize it. Watch this space!
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
