The Essential (or Not So Essential) Guide to Cannabis Stocks

The Essential (or Not so Essential) Guide to Cannabis(Weed) Stocks
Reading Time: 4 minutes

If you have been paying attention to the news over the past few years, then you have likely noticed that the legalization of cannabis in the United States and worldwide has significantly progressed. Due to an unusual coalition of pro-business and pro-agriculture Republicans alongside pro-personal liberties Democrats, cannabis has made at least some legal progress in almost every state in the US and countries all over the world.

Naturally, as the distribution of cannabis shifts from an already existing black market to channels where it can operate more openly, an increasing number of potentially lucrative investment opportunities have begun to emerge. Though many new cannabis businesses have had difficulty getting off the ground, those that are able to establish themselves have helped their initial investors earn a significant amount of profit.

In this brief guide, we will discuss the most important things for you to know about successfully entering the cannabis market. As technology and distribution methods continue to improve—and as markets continue to become more open—then the opportunities to earn a return on your investment will almost inevitably increase.

What is the legal status of cannabis in the United States?

Despite the obvious amount of progress that has occurred at the state level, cannabis—even non-psychotic forms of cannabis such as CBD-dominant hemp—is still considered to be entirely illegal in the eyes of the Federal Government. However, before letting this simple fact deter you from what has been an incredibly lucrative industry, there are few important clarifications that need to be made.

In practice—something that is very important for any nation (such as the United States) operating under a common law system—the legalization of cannabis at the state level has been entirely allowed. In fact, even when Jeff Sessions, widely known for his distaste for cannabis and love for the rule of law, was acting as Attorney General, there were still fundamentally no actions taken against any state that choose to legalize cannabis within its borders.

Beginning with Colorado and Washington in 2012, the use and production of recreational marijuana are now officially legal in ten different states (the most recent being Michigan). The use of medical marijuana is legal in 33 states (the most recent being Missouri), and the production of hemp—which comes from the cannabis plant, but is chemically different from marijuana—is now allowed in all but three states in the union. Due to their claimed commitments to state’s rights, free business, and agricultural interests, even conservatives in the Federal Government have resisted interfering with these literal “grass” roots movements.

Some of the (early) winners on the cannabis stock market

As is the case with many new industries, those who are able to establish a dominant position in the market early are the ones who will likely be in the best position to succeed over time. There are already many different companies within the cannabis industry who—even with the myriad of legal ambiguities mentioned above—have already gained direct or indirect access to some of the largest stock exchanges in the world (including even the NYSE). Though the market itself is indeed quite volatile, many of these companies have enjoyed 300% instances of growth in less than a single month.

If you are someone who is interested in beginning to invest in the cannabis industry, here are some of the top companies that have already established themselves in public markets:

In addition, here are some smaller cannabis companies with high potential:

Generally speaking, the earlier that a state has been able to legalize full production and distribution of cannabis, the more conducive that state will be to establishing itself as a dominant market force.

How to invest in cannabis stocks?

Investing in cannabis can be made in various ways.

  • A broker that provides US share trading through stock exchanges, including OTC – SureTrader.
  • An authorized CFD broker outside the US – AvaTrade

Is a cannabis stock bubble beginning to occur?

Because many of the early entrants into the cannabis market have witnessed incredible, almost unprecedented rates of growth in a short amount of time, many industry observers are rightfully concerned that a “Cannabis Stock Bubble” may be beginning to occur. The industry is often compared to the “.com Bubble” of the late 1990s—both industries were relatively new, attractive to new investors, and simultaneously found ways to offer organic value.

Whether or not a bubble is actually occurring can be difficult to determine. It is likely that individual companies have experienced significant amounts of “bubbling”, which is why many of the companies that experience tremendous rates of growth often decrease in value within the next few trading cycles. However, what also remains abundantly clear is that—likely the tech sector as a whole—the cannabis industry has come nowhere near to realizing its full potential value.

There is no doubt that many individual companies in the industry will be pushed out by increasingly stiff competition and eventually fail. But the industry as a whole is constantly growing. With each passing year, demand is being effectively funneled from an already existing black market to superior, legal avenues. At the very least, claiming that this apparent “bubble” will inevitably pop is something that is highly speculative.

Things to keep in mind when trading cannabis stocks

Just because the cannabis industry has been growing as a whole (like a weed, you might say), that doesn’t mean that any investment in the industry is guaranteed to earn a return. Before purchasing any cannabis stock, there are a few things you should keep in mind:

  • Diversification is especially important within the cannabis industry. This can help you avoid risk specific to individual companies while still enjoying the general growth of the industry.
  • Cannabis stocks are notably volatile. For better or for worse, this means there will be a lot more opportunities to earn returns on your investments, along with many opportunities to lose money as well.
  • Following the legal changes will be important. Cannabis will likely eventually be rescheduled on the federal level. As soon as this occurs, the industry will likely experience a significant increase in value.

Ultimately, those who are able to succeed in the cannabis industry are the ones who are able to follow industry news and also pay attention to technical indicators for each specific stock.

Bottom line

There is no doubt that the cannabis industry is poised to have a lucrative future. While knowledge of which companies will actually maintain or proliferate their values may be harder to come by, there is certainly a lot for investors of all sorts to be excited about.

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