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Before You Invest In A Marijuana Business, These Are The Things You Should Know

Few people would have considered the marijuana sector a good investment just ten years ago. Marijuana, on the other hand, went from being illegal in all 50 U.S. states to being legal (at least in some form) in more than half of them in less than a decade.

Individuals can now invest in the mail order marijuana market more easily than ever before in 2021. However, when it comes to the regulation and normalization of the cannabis industry, we’re still in the “weeds.” The marijuana market will likely continue to be volatile until purchasing, selling, and consuming marijuana is completely legal on a federal level for all purposes (recreational and medical).

Continue reading to learn about the cannabis industry’s history, how to invest in marijuana stocks and ETFs, and the hazards to be aware of before adding marijuana stocks to your portfolio.

We must keep in mind that the cannabis industry is still in its infancy. According to Morgan Paxhia, co-founder and managing director of Poseidon Investment Management, the start of the investable cannabis sector in the United States was just over six years ago, in January 2014.

Despite the fact that recreational marijuana became legal in 2012, businesses did not begin selling it until two years later.

“This month marked the commencement of adult-use legal sales in Colorado, as well as the beginnings of a carefully regulated market,” Paxhia added.

According to Paxhia, there were medicinal markets in the United States as early as 1996. However, because such markets were mostly non-profit, there was no stock to possess and only a little amount of money invested until recreational pot stores became a thing.

In the last seven years, 18 states and the District of Columbia have decriminalized cannabis for non-medical use, allowing the business to expand at a breakneck pace. Indeed, many believe 2020 to be a watershed year for the business, as legal sales in the United States surpassed $17.5 billion, up 46 percent from the previous year.

There are also more prospects to invest in the marijuana market as it grows in the United States.

What is the Best Way to Invest in Marijuana Stocks?

Individuals can invest in the marijuana sector by purchasing shares in marijuana-related companies. Companies in the cannabis industry are often divided into three categories:

  • Growers and dealers of marijuana
  • Providers of ancillary products and services
  • Biotech firms specializing on marijuana

Investing in cannabis companies is similar to investing in any other business. These equities are traded on stock exchanges in the United States, such as the Nasdaq, and can be purchased and sold through any major brokerage firm.

It is critical to conduct study before to investing in general. This contains marijuana-related securities. Examine the company’s financial performance since going public. Its performance can be compared to that of its competitors. Examining the financial statements submitted with the Securities and Exchange Commission is another technique to assess the company’s financial performance.

Marijuana equities, like any other niche or alternative investment, should be kept to a tiny part of your overall portfolio, according to personal financial experts. Alternative assets, such as cannabis and cryptocurrencies, should account for no more than 5% of your investing portfolio, according to many experts. The rest should be invested in index funds with a wide range of holdings.

Stocks to Buy in Marijuana in 2021

In 2021, there will be hundreds of marijuana stocks to choose from. As previously said, cannabis businesses can be classified as producers and sellers, ancillary product and service providers, or marijuana biotech firms.

The following are some of the most popular marijuana stocks on the market today:

Tilray (TLRY) Cronos Groups Curaleaf Holdings (CURLF) Canopy Growth Corporation (CGC) Green Thumb Industries (GTBIF) Curaleaf Holdings (CURLF) Canopy Growth Corporation (CGC) Canopy Growth Corporation (CGC) Canopy Growth Corporation (CGC) Canopy Growth Corporation ( (CRON)

There are companies that have been operating for a long time that have joined the cannabis market, in addition to some of the newer cannabis companies. In fact, you’re likely to recognize some of the names on the list. Among these businesses are:

  • Anheuser-Busch is a beer company based in the United States (BUD)
  • Altria is a tobacco company that produces cigarettes (MO)
  • Scotts Miracle-Gro is a brand of lawn fertilizer developed by Scotts (SMG)

The advantage of investing in these businesses is that they have a track record that extends beyond their involvement in the cannabis market. And, because marijuana is just one of their many lines of business, they may be less vulnerable to the industry’s ups and downs. When it comes to investing, keep in mind that experts recommend diversifying your portfolio, which means investing in large funds rather than specific stocks.

Marijuana Exchange-Traded Funds (ETFs)

Rather than buying individual equities, you may diversify your portfolio with marijuana exchange-traded funds (ETFs). An ETF is a pooled investment that accepts money from a number of participants and invests it in a variety of equities. When you buy an ETF, you’re essentially buying all of the equities in the fund.

Cannabis ETFs, on the other hand, are not without risk. Investors should be aware that companies in new industries are more volatile and more likely to fail, so they should plan appropriately. Before investing in any fund, investors should evaluate the expense ratio, as industry-specific ETFs may have quite high fees.

Keep cannabis investments to a modest fraction of your overall portfolio and invest the rest in wide index funds to reduce these risks and costs.

Suggestion

Investing in a marijuana ETF has all of the benefits of investing in marijuana companies, but with the added benefit of portfolio diversification. An ETF is a good place to start if you’re new to marijuana investing.

Investing in Marijuana Stocks Comes With Risks

It’s critical to think about all of the hazards and comprehend what you’re getting yourself into before investing in marijuana stocks (or anything else, for that matter).

“Many stocks in our space have significant upswings and downswings,” Paxhia added. “The year 2021 is a case in point, with various cannabis stocks soaring considerably until February 2021, then plummeting by as much as 50-60% by October 2021.”

With the cannabis market in the United States still in its infancy, this volatility is unsurprising. Investors who haven’t seen high volatility in their portfolios before, or whose portfolios are too strongly skewed toward cannabis, may be surprised.

Is it a Good Idea to Invest in Marijuana Stocks?

Anyone considering investing in marijuana stocks should do their research and determine why the investment would be a suitable addition to their portfolio, just as they would with any other investment. It’s critical to conduct due diligence and comprehend the risks associated with this new sector.

Make sure you have all of your other financial ducks in a straight before investing in marijuana stocks or ETFs. Check to see if you’re putting enough money into your 401(k) or individual retirement account (IRA) to fulfill your retirement objectives. You can use this online retirement calculator to figure out how much money you should set aside for retirement.

You can start adding cannabis to a modest piece of your portfolio if you’ve prioritized your retirement savings and are financially secure elsewhere. However, because of the industry’s volatility, only invest money you can afford to lose.