Ways to Invest in Cannabis
Cannabis legalization in Canada helped kickstart a financial revolution in the stock market with the launch of a diverse portfolio of marijuana stocks.
With the boom of public cannabis businesses in full swing, are you thinking about investing in cannabis companies? If so, consider starting your journey here.
A wide spectrum of marijuana stocks have made their mark in the global industry thanks to the amount of money raised from investors and the attention the sector is getting from established industries.
What’s to come is anyone’s guess, but it seems this new and burgeoning industry is still in its early days, with diverse nations beginning to move forward with plans for legalizing marijuana.
That means there’s likely still money to be made in cannabis stocks as the market builds and cannabis products expand in availability over the next few years.
There are many differing opinions about how much the global legal cannabis market will be worth in the years to come, with estimates including US$70.6 billion by 2028 and US$91.5 billion by that same year.
But one thing is almost certain: The market is set to grow as opinions surrounding the plant evolve over time and as platforms crop up to supply different consumption preferences. And all of that will mean more cannabis investment opportunities with both existing companies and future entries to the market.
For now, let’s take a look at where you can invest your money at this point in time.
How to invest in cannabis: Canadian cannabis stocks
First thing’s first: Canada. This is the obvious place to start as marijuana is legal at the federal level and Canadian cannabis stocks are less likely than their US counterparts to suffer from political volatility.
That said, due to the uncertainty of investing in the US marijuana space, where the drug is not legal at the federal level, Canadian firms have been forced to make choices about how they operate. For example, Canada’s senior exchanges do not allow companies with American cannabis assets to list.
While the Canadian cannabis space continues to face challenges, investors are eagerly watching as companies move into the edibles and beverages markets and develop new products.
For lists of Canadian marijuana stocks to consider, click here.
How to invest in cannabis: US cannabis stocks
Although some US states have legalized cannabis, American cannabis stocks may be riskier than those in Canada due to federal restrictions on the sale and cultivation of cannabis.
However, as the saying goes, the greater the risk, the greater the possible reward. The US market could grow up to US$43 billion by 2025, and that’s not even including the size of the market if nationwide legalization happens. It’s easy to see that US cannabis stocks could inherit a huge chunk of the pie if federal law finally legalizes the commodity.
All in all, picking the right US cannabis stocks could mean massive gains if the plant is ultimately legalized federally. It’s important for investors to do their research and to be aware of the risks and potential benefits involved in investing in the space.
For a list of US cannabis stocks to consider, click here.
How to invest in cannabis: A side note
Many companies in the cannabis space have begun to veer in one direction or another.
For example, some of the largest marijuana producers have moved towards deals with beverage or pharmaceutical companies for the production of novel new products. Others in the space continue to pursue innovation in the recreational market.
The beverage side has seen particular interest from companies, with cannabis firms partnering with brew businesses. One example is Canopy Growth (NYSE:CGC,TSX:WEED), which has teamed up with Constellation Brands (NYSE:STZ), a leading producer in the alcoholic beverage industry.
Each niche has its own possibilities and challenges. For example, while many market participants are convinced of the promise in beverages, these drinks have been hampered by strict marketing rules, among other factors.
Another aspect to consider is whether to pursue big caps or small caps. That has a lot to do with personal comfort. While big caps are often regarded as more stable than small caps, in the cannabis industry there’s been considerable volatility.
How to invest in cannabis: Cannabis ETFs
If you really know your cannabis companies, then you could enjoy larger gains by simply investing in those specific firms. However, if you aren’t overly familiar with the cannabis space or you are new to it, it could be a good idea to check out the cannabis exchange-traded funds (ETFs) available.
A cannabis ETF gives you exposure to several different cannabis stocks and takes the guesswork out of cherry picking which stock to bet on. One issue with ETFs is that like any other group dynamic, if one stock drops off it brings the whole fund down proportionally with it. Of course, the opposite is also true.
Recently investors have seen the addition of new ETFs offering exposure to the US market, including firms with entries into the hemp space, thanks to the sales of CBD products.
For a list of cannabis ETFs to consider, click here.
How to invest in cannabis: Final thoughts
No matter which way you slice it — or grind it, in this case — the cannabis market is an exciting business to invest in right now. Whether you invest in cannabis ETFs or Canadian or US marijuana stocks, or if you’re still waiting on the sidelines for more maturity from the types of cannabis companies trading, this industry is one to watch, and one that looks like it’ll keep climbing in the future.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.