How to Invest in Marijuana Stocks: An Investor's Guide

how to invest in marijuana stocks

It’s no secret that cannabis legalization is sweeping the United States and could gain even more traction in 2020. This means that despite the current interruptions in the stock market caused by the COVID-19 pandemic, investing in cannabis is still a great long-term strategy.

Not sure how to invest in marijuana stocks? You’re in the right place! Keep reading to learn all the information you need to get started.


How to Invest in Marijuana Stocks: Start by Doing Your Research!

No matter what industry you’re interested in, it’s never a good idea to make investments if you don’t understand what you’re getting into. That’s why the first step in investing in marijuana is to spend some time learning about your options.


Medical vs. Recreational Marijuana

First, you’ll want to understand the difference between medical and recreational marijuana. Medical cannabis is currently legal in many more places – including 33 states, Washington DC, and over 30 different countries. This article by Erba Life provides more information about medical marijuana’s use in Canada.

Recreational marijuana, on the other hand, is only legal in 11 states, Washington DC, and several other countries.

While tetrahydrocannabinol (THC) is included in many medical marijuana products, Cannabidiol (CBD) is usually the preferred product for medical marijuana users.

Not surprisingly, recreational users tend to prefer much higher THC levels as this is what creates the psychoactive effects. Cannabis flower is the most popular consumption method among recreational users, although vapes and edibles are also quite popular.

Why does all of this matter? Because when you’re choosing cannabis stocks, you’ll want to understand what the company does and whether, based on your research, you expect that it’s poised to grow (after all, that’s the whole point of investing in stocks!).  


Types of Marijuana Stocks

In addition to deciding whether you want to focus on medical or recreational products, you’ll also need to know about the different types of marijuana stocks. The three most common are growers and retailers, biotechs, and ancillary products and services.

Marijuana growers and retailers include companies that cultivate cannabis, harvest crops, and distribute them to the end customer.

Cannabis-focused biotechs are companies that are working on developing cannabinoid drugs.

Ancillary products and services includes companies that support the marijuana industry in some way. For example, companies that make hydroponic and lighting systems, cannabis packaging products, or companies that provide management services for cannabis companies would all fall into this category.


Decide on Your Stock Picks

Now that you know the basics, you’ll need to decide which parts of the marijuana industry you want to focus on. Then, spend some time researching actual stocks that fall into these categories. It may be helpful to start with a list of the top marijuana stocks

Before buying a stock, make sure you’re familiar with the company’s management team, financial status, competitive position, and growth strategy. Find out whether the company is currently profitable and whether it has sufficient cash positions to continue funding its operations.

If you’re looking into growers or retailers, you’ll also want to consider things like their costs-per-gram, packaging expenses, and outlook regarding things like growing seasons.

When you choose your stocks, it’s best not to go “all-in,” especially if you’re an investor. Start by purchasing small positions and see how they do. These stocks tend to fluctuate and are generally not good for conservative investors.

Our best advice is to “dip your toe in” and see how it feels. This way, if things don’t turn out like you expected, you can always revisit your research and change your approach without taking too much of a loss.


Open an Investment Account

If you haven’t done so yet, you’ll need to open an investment account before you can buy your stocks. You can do this through major brokers (like TD Ameritrade or Merrill Lynch), app-based trading platforms (like Robinhood), or, sometimes, even through your bank. 

Before you open your account, make sure that you’re able to purchase the stocks you’re considering on their platform. It’s also a good idea to look at the trading fees and choose a provider that will help you keep these extra expenses under control.


Monitor Your Investments Carefully

Once you’ve made your stock purchases, you might think the hard work is done – but that couldn’t be further from the truth! Regular monitoring is one of the most important parts of investing in any type of stock, and particularly in a volatile industry like cannabis.

Now, that’s not to say that you should make knee-jerk changes every time the stock starts to move. Some changes are to be expected and you don’t want to react too strongly. However, the cannabis industry changes rapidly, so this definitely isn’t a “set it and forget it” type of investment.

Instead, closely monitor your stocks and the industry as a whole. Pay attention to changes in laws, fluctuations in supply and demand, and other issues that could significantly impact your growth projections.

Overall, it’s a good assumption that the marijuana industry as a whole will continue to grow over the long-term. However, that doesn’t guarantee that it will grow as quickly as you would like or that every stock in the industry will do well.

Take your time, do your research, and start slowly and you’ll do just fine!  


Build Your Marijuana Portfolio Today!

Now that you understand the basics of how to invest in marijuana stocks, you’re ready to start doing your research and make your first investment. How exciting for new investors!

Before you leave, take a few minutes to browse through a few more of our investing, stock, CBD, and cannabis blog posts. We have tons of interesting information and life hacks to help you get ahead in life!

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