Investing in Cannabis
Healthy Tips for Investing In Cannabis Stocks
Medical cannabis is one of the fastest growing industries in the US. New Frontier Data, a market research firm which tracks long-term potential for the cannabis industry projects that cannabis sales will reach $40 billion by 2021 and create more than 250,000 jobs. And according to ArcView, a cannabis industry research firm, cannabis sales in the U.S will expand by more than 200% by the year 2020 to $22 billion.
Whichever way you look at it, the prospect of cannabis stocks is thrilling. And three factors give it even more tailwind.
First, there is the newly legalized recreational cannabis market in California. BDS Analytics, a cannabis industry research firm, projects the California market to hit over $5.1 billion by 2019 especially as more dispensaries come online.
Secondly, a number of biotech companies carrying out research to develop and market cannabinoid drugs have achieved significant milestones. For instance, the biotech company GW Pharmaceuticals submitted its cannabinoid drug Epidiolex to the U.S. Food and Drug Administration (FDA) for approval. Extensive clinical tests show that Epidiolex is efficient and safe for treating Dravet syndrome and Lennox-Gastaut syndrome (LGS). Epidiolex is likely to get FDA’s nod by June 2018.
The final boost to cannabis stocks comes from Canada. Statistics Canada, a data agency, estimates that the value of Canada’s cannabis market currently stands at almost $6 billion. Then, there is the expectation that Canada will federally legalize cannabis later this year. This will streamline the tax code and allow companies to deduct business expenses from their income, thus improving their profits.
Could now be the best time to own a stake in the cannabis businesses? To help you answer that question, there are a few things you need to consider. You don’t want to dive into a business investment without having the necessary information.
So before you invest in cannabis stocks, consider the following tips:
Consider International Investments
Marijuana legalization is a hot topic worldwide, not only in the US.
Israel is among the first countries to have legalized medical cannabis in the early 1990s. The Israel Government supports a medical cannabis program making it easy to conduct clinical research unlike in other countries.
According to The Cannabist, US companies have been investing about $50 million since 2014 in cannabis patenting, inhalers, and agro-tech start-ups.
Currently, more than 500 companies are involved in the industry thus bringing in massive capital investment. The Israel cannabis market has an annual turnover of over $1.9 billion.
The Australian cannabis industry recently got a boost after the government allowed exports of medicinal cannabis. Cannabis stocks jumped by between 30-50% after the government’s announcement
So the key thing is, do not limit yourself to the US. Consider interesting opportunities in other countries as well.
Explore Direct and Indirect Investing
You can invest directly in companies dealing with the cannabis plant – production, processing and all that. But, you can also invest without buying pure-play cannabis stocks. Think of companies that provide product and services to the cannabis industry.
For instance, companies that sell products that are essential for growing cannabis plants, such as hydroponics, fertilizer, and lighting systems for greenhouses. Such companies will expand as the cannabis industry expands.
Diversify Your Stock Portfolio
The cannabis industry is relatively young. Some of its companies will grow to be international giants while others will die off. As of now, it’s difficult to predict those that will survive in the long run and those that will go bust. Your best bet is the old adage “do not put all your eggs in one basket”.
Focus On Companies with High Market Capitalizations
Currently, there are over 300 cannabis stocks being traded in the US. Some have huge market capitalizations of over $250 million. Others are humble startups with less than $50 million. Young companies offer the best potential for remarkable growth, but they easily suffer from market volatility. Large companies have a better capacity to withstand these market uncertainties.
Consider A Company’s Current and Future Prospects
What is the market share of the company you want to invest in? And what are its growth prospects? Does it produce revenue?
Look at its management.
What are the credentials of its executives? Do they have the experience and fortitude to navigate through the world of ever-changing laws and regulations in the cannabis industry? Are they forthright in giving information?
Don’t just stop at that. Seek for additional information. Company made marketing content and press releases will always paint a rosy picture of their financial outlook. Take their projections with a pinch of salt. Instead, talk to brokerage experts. Read independent investment publications.
In short, conduct sufficient research before you commit.