How to Invest in the Marijuana Stock Market
The Marijuana industry is worth a lot of money with billions of dollars involved. This means that you stand a chance of either making a lot of money or losing a lot of money. That’s why investing in the marijuana stock market for beginners, especially, is not easy. If you want to invest successfully in this industry, you must carry out due diligence.
If you are thinking about investing in the marijuana stock market, you need to have a strategy in place. There are no two strategies that are the same. If you’re considering investing in the marijuana stock market, consider reading this article first.
Here’s all the information you should know before you get started.
Marijuana Stock Market for Beginners
Every time you choose to invest in a company, you’re risking your money with the hope that you are going to get good returns. In most cases, you will be investing with the aim of accumulating wealth.
The best plan would be for you to invest in strong and stable companies that are likely to be successful. This increases your chances of getting good returns on your investment. If the company is not stable, you will be constantly worried about your investment. Based on research, trading is not as profitable as most people think that it is. That is why it’s best to go for a long-term investment plan.
What to Know About Small-Cap Marijuana Stocks
The focus of this article will be to talk about investing in marijuana stocks. However, you need to know that most marijuana stocks are small cap investments. Investing in a company which has a small cap investment enhances the chances of your investment growing over a three to the five-year time frame as compared to other big share firms in the market. You will also stay away from the competition that the big investors bring about.
The Over-the-Counter Challenge
Even though cannabis can be legally used in some states in the US for medicinal and leisure purposes, marijuana is still illegal at a federal state level. The DEA has categorized it as a schedule 1 drug. This has made it a challenge for companies that deal with marijuana to get listed in the NYSE or NASDAQ.
Consequently, this has led to some firms trading through over the counter exchanges. This greatly reduces how much scrutiny such companies get, as compared to the amount of scrutiny that companies which are publicly traded get from SEC.
According to Leslie Bocskor, the head of Electrum Partners and also an investment banker, over-the-counter exchanges have their own issues. They are not deemed to be as serious as the big exchanges. Also, the companies which are listed there tend to have questionable standards. That’s why it’s not ideal for companies that trade in marijuana to be listed in such exchanges.
However, Leslie went on to add that not all OTC exchanges and penny stocks are to be feared. People consider low priced stocks suspicious; however, this shouldn’t be the case. The best thing would be to reverse split stocks, reduce the number of shares and spike the prices. This would produce better results.
How to Avoid Bad Marijuana Stocks
How can you ensure that you find good marijuana stocks and avoid the bad marijuana stocks?
As an investor, you have to do your own research to ensure that you make a good investment. However, this can prove to be a huge challenge since not everyone is good at analyzing the books of a company and deciding whether the company is doing well or not. Moreover, you might not even have access to the company’s documents.
Nevertheless, there are other options that you can explore. For instance, you can choose to invest in ETFs like the ETFMG alternative Harvest ETF and the Horizons Marijuana Life Sciences Index. The advantage of doing this is that you will invest in stocks that have been pre-selected by analysts, who have done their research and included these companies in EFTs.
Alternatively, if you’re looking to grow your stock portfolio, it’s advisable to get the advice of professional stock pickers and investment advisors, such as Jeff Siegel and Alan Brochstein.
According to Siegel, most of the Canadian stocks are being sold for more than they are actually worth. Therefore, he advises investors to invest in US Cannabis stocks instead since the industry is quite likely to grow soon. For instance, US Cannabis companies like Innovative Industrial Properties (NYSE: IIPR) and MariMed (OTC: MRMD) are a good investment choice.
Check out my article on the top marijuanas penny stocks 2018
Making Money with Marijuana Stocks
There’s the possibility of making a lot of money by investing in marijuana stock market for beginners. This is if you are smart enough to make good investment decisions. You can trade marijuana stocks in OTC exchanges, or you can find them in major exchanges, such as the NYSE and NASDAQ. For instance Canopy Growth Corporation (TSX) and Cronos Group (NASDAQ). You can buy weed stocks in the Canadian Stock Exchange or even the Toronto Stock Exchange. Before you invest in a company, make sure you first understand what it is that they do, you know who the board of directors are and that there’s much more to the company than just its name on the paper. The mission of the company should also be in line with yours.
The Marijuana Index
Checking out the MJIC Marijuana Index should be your first course of action. This is because it will give you a good idea of the kind of companies that are in this business. Firms that are included in this index fundamentally deal with cannabis flowers and oil. This at least assures you that half of the business is about marijuana. You will at least know how your money is being used.
Be Careful of Press Releases
If there are lots of press releases about a company, you should be cautious. This might not necessarily be a good sign. What you should do instead is to check out news sites for more information about the company. This will help you make a more informed decision about a company’s stock. But no company is exempt from the bad news so don’t be shocked if there’s any negative news from time to time about the company you want to invest in.
The Marijuana Market Can be Unstable
Don’t assume that everything will go well. You have to take into consideration how unstable the marijuana market can get at times. This will help you make better investment decisions.
Politically, weed is a very sensitive topic. If there’s any negative talk about pot by major politicians, the stock price of marijuana will drop. Even any major news announcements about pot will affect stock prices negatively. Therefore you should learn to expect this when you’re investing in this industry.
Don’t go at it alone when investing in this industry. It’s best to use the services of a broker. This is due to the instability of the market. Moreover, if you’re investing in this area for the first time, you might not know how to go about it, and this can hold you back from ever getting started.
A broker can be a great deal of help. They will show you how to navigate this market and teach you to understand the financial statements of the company. They will also show you why it’s good or bad to invest in a particular company.
However, you must know that your broker expects to get paid a commission of your investment. It’s worth investing this money as you will get value for your money, and they will help you make better investment decisions.
Where to Find a Marijuana Stockbroker
When hiring a stockbroker, it’s essential that you first analyze them and see if you are a good fit with them before you start working together.
Here are some suggestions of stockbrokers that you can use:
- BMO Investorline
- Royal Bank of Canada
In the US
- Scott Trade
For international traders who are not located in the US or Canada, you can use:
- Interactive Brokers
Marijuana is still not legal in the US. That’s why you will need to work extra hard to find advisors who are legally able to advise you on which marijuana stocks are the best to invest in and avoid bad marijuana stocks.
This makes online trading platforms, such as E*Trade to be quite advantageous to use. However, if you don’t have a lot of funds to invest, then you are better off using trading platforms like Robinhood, where you can trade with low amounts of money.
Are You Ready to Invest in Marijuana Stocks?
The first step you should take when you want to get started in this market is to do your research and then find a stockbroker.
Keep an eye on the market and watch what’s happening in the news, so that you can know what’s happening in the market. This will help you protect your investments. You should not shy off from getting directly in touch with Cannabis companies and making an appointment with the board members, to gain a better understanding of what it is that they do. This will give you a chance to have a good understanding of the business and maximize your investment.
Steps You Should Follow
Here are the six essential steps that you should take when you’re investing in marijuana stocks or making any other kind of investment.
- Research the company
Find out as much information as you can about the companies that you intend to invest in. One of the best ways to do this is to check out news reports about the company. You can check websites like Yahoo, Twitter, and even Stocktwits. You should also check out the documents that SEC and other regulatory bodies usually require from publicly listed companies.
- Decide the amount you will invest
When deciding how much money you want to invest, keep in mind that stock prices are quite volatile. Therefore, a good rule is for you only to invest the amount of money that you can afford to lose.
A lot of people tend to invest only in one or two stocks. This is not a good idea since it’s quite challenging to tell which companies will perform well in the stock market. This is because cannabis is still a new industry. Back in the 1990s, the companies that people invested in with the hope that these companies would do well didn’t even make it past the first three years. Your long-term portfolio should include a list of many companies.
- Pick a time frame
Decide beforehand when you are going to buy and when you are going to sell. Select your threshold even before you start trading in the market.
- Choose a broker
When choosing a broker, you can go to a brick and mortar stockbroker, or you can go for an online option like E*trade or Interactive Brokers. All you have to do is register your account and then add money into it.
- Purchase stock
When buying stock, you can do it in two ways. You can set up a market order. This will allow you to purchase the stock at its current market price. You can also go for a limit price. This allows you to purchase stock once it falls below a certain limit. However, you are not guaranteed that this will happen since it’s dependent on the price of the stock falling.
- Sell stock
Once the price of the stock has gone up to such an extent that you will make a profit when you sell it, then sell it. You can sell it through a limit order or market order. You can then reinvest your profits or spend it