The Marijuana Industry is Lucrative. Here are things you need to know before you invest in cannabis.
A decade ago, not most individuals considered investing in the cannabis industry. However, this has changed in recent years. For instance, weed went from being illegal in the whole of the USA to being legal in over half of the states.
In 2022, it will be easier for investors to invest in cannabis. However, we are yet to normalize and regulate the cannabis sector.
Until growing, selling, buying, and using the plant is 100% legal on the federal level for each purpose (medicinal and recreational), the sector is likely to continue showing signs of volatility. However, sites such as https://askgrowers.com/, are doing a great job educating users and potential investors about the plant. Today, you can find anything you need to know about marijuana with a click of a button. Go on reading this piece to learn how to invest in marijuana stocks and ETFs, the reasons, and the risks involved.
Top Reasons to Consider Investing in Marijuana
Investing in an industry or company will finally depend on the income these firms can deliver to investors, and the cannabis sector is the same. However, there are particular reasons to be thrilled if you are an interested investor.
- Massive growth potential: The sector is still young, and more states are still legalizing it. Because of this, there is much room for future growth, which can be brought by more states legalizing, and possibly the federal government and more significant adoption of uses and products.
- New uses and products: Most individuals have an outdated view of cannabis. However, thanks to new products made from cannabis, researchers are currently studying its use in most sectors, such as cancer treatment and conditions like Alzheimer’s. Products with CBD are becoming more popular with consumers buying goods such as CBD beverages, oils, and chewing gums.
- You might be the first person to take advantage of investment gems: As organizations put effort into creating innovations in the fast-growing industry, opportunities will arise for people willing to participate in research. Although there are risks that come with fast-rising sectors, the advantages can outweigh those risks.
How To Invest in Cannabis Stocks
You can invest in the cannabis sector by buying stocks of a company already in it. The firms within the industry mostly fall into three categories:
- Retailers and growers
- Ancillary service and product providers
- Cannabis-focused biotech companies
Buying and selling marijuana stocks is similar to doing it in any other industry. You can trade these stocks on the US stock exchanges such as Nasdaq and sell or buy them via any reliable brokerage company.
Before you start investing, it’s vital to do research. You need to look at the firm’s financial performance from when it went public. Make a comparison of how it compares with its competitors. You can review its financial statements posted at the Securities and Exchange Commission.
Like in any alternative or niche investment, experts recommend investors limit cannabis stocks to a tiny percentage of their entire portfolio. Most suggest 5% of their investment portfolio in assets like cryptocurrency and cannabis. You should keep the rest in diversified, broad index funds.
ETFs are also becoming a popular way of investing in the marijuana industry without choosing specific companies. However, you must be careful and avoid paying too many fees.
ETFMG Alternative Harvest ETF (MJ) is one of the most popular. It has shares in around 37 companies and was created to track performance in the weed sector companies.
When investing in an ETF, you will pay an annual fee of around 0.75%, higher than the standard stock index fund.
Are There Risks to Investing in Marijuana?
Each investment comes with different risks, and the marijuana sector is no different. Although the idea sounds exciting, below are several risks to keep in mind.
Regulations/legalizations: Although the current trend shows that most states are legalizing the plant, don’t forget that the federal authority still considers it illegal. For this reason, it’s challenging for firms in the industry to raise funds via traditional ways such as banks that the federal government regulates. Laws are different in different states, which might change depending on the political leaders or party in power. In regions where weed is legal, costly regulations and high taxes on sales might make it hard for you to make profits.
Increased competition: You’re not the only person seeing the potential for growth in this industry. It’s attracting many entrepreneurs and companies that want to capitalize on this profitable venture. However, this also means it will become highly competitive, which can significantly impact the return on investment that shareholders will earn. Although the industry is growing, this does not mean that every investor will benefit. For example, the Airline industry recorded losses for many years despite creating robust innovation for the world.
Early days: The marijuana industry is young and just starting to grow. Many firms are yet to make profits despite them promising great returns to shareholders in the future. Although there is a vast potential to make profits, you should not forget that you will only benefit if there are future profits.
As the cannabis industry and the number of states where it is legal continue to expand, most investors are excited about its profit potential. Studies by New Frontier Data show that legal marijuana sales are expected to increase by over 16% annually and reach $51 billion by 2025.
Thanks to CBD, a massive collection of medical benefits and increased use of marijuana products make the sector ready for continued growth. More legalization makes the idea of investing in the industry very enticing. However, remember that new innovations don’t always lead to profits. Be careful and do proper research before making any investment. It’s common knowledge that investors should only invest in things they understand. In this case, you might understand cannabis but investing in it comes with several banking and investment challenges.