How to be smart in buying pot stocks?

2 min

Legalization is gathering momentum in the American states, and Federal legalization cannot be too far behind. The cannabis industry is quickly gaining momentum as huge, well-financed companies in states like Colorado and California pull in massive new waves of capital. The most recent statistics show that investors poured over $13.85 billion into cannabis distribution this past year, and billions more in the years leading up to that. They are poised to invest $6 billion more this year than they did last year, an upward trend projected to continue for at least 3 more years!

The recent push toward legalization has taken deep root in Canada, where medical marijuana is now fully legal. And while cannabis may trade openly on the Canadian market, it still has a bit of a tough time in the American markets, due to the slower, but now seemingly inevitable, advent of Federal decriminalization. For these reasons, those thinking of investing in this promising new industry, where a great deal of money will soon be made, would behoove themselves to consider investing in the Canadian market and in smaller markets, including penny pot stocks.

Of course, prudence is a virtue, and anyone thinking of investing in cannabis owes it to themselves to carefully research the market, as one would investigate any substantial investment. First, one must consider the enormous growth potential of this product. Marijuana has been increasingly shown to have enormous promise as a medical treatment for disorders ranging from cancer to psychiatric conditions and chronic pain. Legalization is advancing steadily both in the American states and, again, in countries like Canada and Uruguay. Federal legalization in the U.S. — strongly hinted at in a 2018 Farm Bill that laid the framework for legalizing medical uses of hemp — would really open up a new world market, and among investors there is a huge fear of missing out.

The potential for profit is undeniable, though the price of cannabis stocks remains unnaturally low due to the current legal and regulatory environment. So it’s really a great time to buy! The savvy investor should simply know the same sorts of fundamental things he or she should know for any other kind of stock in any other industry. For instance, he should understand such basic contours of the industry as the distinctions between growers, cannabis-focused biotech companies, and ancillary product and service providers. Understanding such points of difference will enable the investor to better compare prices, and to understand price movements.

Another point to consider is the difference between the “all in” cost of sales per gram, or the cost to produce cannabis, and the cash cost per gram, which excludes packaging and inventory adjustment costs. Understanding distinctions of this sort will help the investor examine balance sheets. Moreover, an investor should pay close attention to the number of warrants and convertible securities issued by a cannabis concern. Companies with large issues of these types of security could see their stock diluted and shares plummet in the future.

In sum, one certainly doesn’t have to be high to invest in cannabis. It’s an exciting new industry with a promising future. All one needs to be part of it is to use a little savvy and to conduct a little due diligence. Knowledge is power.

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