How to Buy Weed Stocks: Basic Best Practices for New Investors
October 25, 2023 (Investorideas.com Newswire) The legalization and decriminalization of marijuana by many states over the years have made the industry attractive to investors. While cannabis entrepreneurs still look forward to banking and federal reforms, the market has been projected to grow exponentially in the coming years.
These figures indicate there is no better time to invest in the industry than now.
At first glance, weed stocks may seem somewhat limited to cultivation and retail operations such as Weed Dispensary in Sacramento and other areas, but once you dig a little deeper, you will discover there is more to the industry. There are subsectors within the industry where biotech and research companies, among others, operate.
Meanwhile, investment in the cannabis industry should be treated like any typical investment, if not more thorough.
This is because marijuana, the industry’s main product, is still classified as a Schedule 1 drug at the federal level. This makes investment in related companies risky, as any future legislation may significantly impact their stocks. It is recommended you do your thorough research before investing your money.
Some of the things you will need to understand as a new cannabis investor include:
Types of marijuana products
Understanding the various types of marijuana products can help you accurately assess the potential of a weed stock.
Generally, marijuana products are divided into two based on their use: recreational and medicinal.
- Recreational marijuana: Recreational marijuana products are consumed for pleasure and sometimes for their health benefits. However, buyers do not need a prescription before they can buy them.
It is legalized in over 20 states in the U.S., but with restrictions on the quantity residents can possess.
This means sales might be higher in states where up to 2 ounces are permitted compared to others with a limit of 1 ounce.
- Medicinal marijuana: Medicinal marijuana is prescribed by an authorized healthcare provider. This means they are not sold to patients without a professional’s prescription.
They are typically more expensive than recreational weed, while their sales depend on the number of people suffering from the ailment they cure and the availability of alternative medicines.
Currently, over 36 states in the US and more than 40 countries have legalized medicinal marijuana.
Different types of cannabis companies
While there are different sub-sectors in the cannabis industry, they can broadly be divided into three:
- Cultivators and retailers: These companies specialize in growing, harvesting, and distributing cannabis products to consumers.
- Biotechnology and research: Some biotechnology companies specialize in extracting marijuana compounds to develop new drugs. Some also specialize in laboratory research to discover ailments that can be cured with weed.
- Construction, packaging, and service providers: These companies do not deal directly with the cannabis plants but instead provide products and services that ensure successful cultivation, packaging, and retailing of marijuana products. They may offer lighting systems needed by growers for the indoor cultivation of marijuana. They might also provide transportation and logistics services to cannabis companies.
Legislation is an essential factor to research when considering a cannabis stock. For instance, while many states in the U.S. have either licensed or decriminalized marijuana possession and use, it is still a Substance I at the federal level.
Also, some drugs that contain marijuana compounds need the approval of the U.S. Food and Drug Administration (FDA) before they can be sold.
Ensure the company has all the necessary approvals for its products. They must also operate as permitted by the law in their area.
Another thing to note is that many cannabis companies trade on Over-The-Counter markets, which means they are not required to file financial statements regularly. This can make it more difficult for investors to assess the risk of their stock effectively.
How to buy weed stocks
If you are comfortable with the risks involved, investing in the cannabis stock market is relatively straightforward.
First, open an online brokerage account. Then, research and select the specific cannabis stocks or funds you want to buy. Also, consider how these investments fit into your overall investment portfolio.
Cannabis stocks and funds are more volatile than the overall market, so be mindful of their impact on your portfolio. If you're new to investing, start by buying index funds and building a diversified portfolio with a mix of stocks, bonds, mutual funds, ETFs, and alternative assets. Experts recommend investing no more than 5% of your portfolio in volatile assets like weed stocks.
It's essential to have a long-term mindset when investing in cannabis stocks. While the buzz around marijuana makes these stocks attractive, there are still hurdles to overcome without federal legalization. These stocks may experience short-lived surges or slumps if investors bet on legalization efforts that don't come to fruition, as has happened in the past. As a result, only invest money you are comfortable potentially losing and be prepared for volatility.
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