The global marijuana markets are experiencing exponential growth, with the anticipated value of the worldwide legal cannabis market set to soar at a compound annual growth rate of 26.3%, reaching an impressive $91.5 billion by 2028, according to Grand View Market Research. This robust expected growth has captivated the attention of numerous investors eager to delve into cannabis stocks.
To embark on a successful journey as a cannabis investor, follow these seven crucial steps:
1. Understand the Variety of Marijuana Products
There are two primary categories of cannabis products:
a. Medical marijuana: Legal in 38 U.S. states, the District of Columbia, and over 40 countries, medical marijuana serves medicinal purposes. Patients typically require a prescription from an authorized healthcare provider for conditions such as anxiety, depression, pain, and stress.
b. Recreational marijuana: 24 U.S. states, along with Washington, D.C., Canada, Georgia, Malta, Mexico, South Africa, and Uruguay, have legalized recreational marijuana for adult use.
2. Familiarize Yourself with Different Types of Marijuana Companies
In the marijuana industry, three main types of companies exist:
a. Cannabis growers and retailers: Involved in cultivation, harvest, and distribution, some operate retail stores selling medical and/or recreational cannabis.
b. Cannabis-focused biotechnology companies: Engaged in extracting cannabinoids from marijuana to develop pharmaceutical drugs.
c. Ancillary product and service providers: Offer support to the marijuana industry by providing products like hydroponics, lighting systems, packaging materials, and management services.
3. Recognize the Risks of Marijuana Industry Investing
Investing in marijuana stocks involves specific risks:
a. Legal and political risks: Federal illegality in the U.S. and restrictions on banks dealing with marijuana-related businesses pose challenges.
b. Supply and demand imbalances: The industry is susceptible to irregularities in supply and demand, leading to fluctuations in prices and revenue.
c. Over-the-counter (OTC) stock risks: Many cannabis companies trade on OTC markets, which may lack regular financial filings and liquidity.
d. Financial constraints: Unprofitable companies may face cash shortages and dilution of existing shares.
4. Identify Key Factors in Top Marijuana Stocks
When evaluating marijuana stocks, consider:
a. Research the management team.
b. Understand the company’s growth strategy and competitive position.
c. Scrutinize financial statements.
d. Examine issued warrants and convertible securities.
5. Assess Top Cannabis Stocks and ETFs
Explore leading marijuana companies and marijuana-focused exchange-traded funds (ETFs) to gain insights into potential investments.
6. Invest in Preferred Cannabis Companies
Investing in marijuana companies is not suitable for everyone; conservative investors may opt to avoid such stocks. For those embracing the risk, it’s advisable to start with a small position and gradually increase it as the market and company performance evolve.
7. Stay Abreast of Changing Marijuana Industry Dynamics
While adopting a long-term view is recommended, the dynamic nature of the marijuana industry requires vigilant monitoring. Criteria for stock-buying decisions may evolve rapidly, necessitating adaptability.
The global marijuana industry is poised for tremendous growth, albeit with potential unevenness. Following these seven steps can guide investors through the exciting yet challenging landscape of marijuana stock investment. Keep a watchful eye on industry dynamics for informed decision-making.
