Ever wondered the utility of investing in high-performing stocks? Do you identify as someone who loves to take risks and explores exciting avenues when it comes to financial matters? Keep on reading!
Let us break it down to you at the very start of this article: Marijuana markets across the globe have grown tremendously, with the market’s worth expected to reach $150 billion in a decade or two. With such a happening market for cannabis, marijuana stocks are well on its way to become a hot tradeble product in the investing landscape!
There are quite a few technicalities here and there when it comes to investing in marijuana stocks. But no opportunity presents itself without your due share of efforts, right?
Luckily, we have gone the extra mile for you in terms of preparing a beginner’s guide so that you can effectively navigate through and reap benefits of the “green rush” of the marijuana industry.
Sit back and relax while we touch upon the essentials of investing in the trending marijuana stocks!
Marijuana Stocks: What are they?
In its simplest form, marijuana stocks are referred to the stocks of a company, which is directly or indirectly linked to the cannabis industry, such as pharmacies, supply companies, and manufacturing firms.
Formally speaking, you can break it down to the following three categories:
- Marijuana growers
- Cannabis-centric biotech companies
- Ancillary service providers
In recent years, particularly because of the legalization of marijuana for recreational and medicinal uses in different states, marijuana stocks have managed to enter the mainstream investing list.
The multi-billion dollar industry is an attractive venue for investors, given its strong demand and the legal status in more than 30 countries.
Although the federal laws of the US consider marijuana as illegal, hemp was legalized at the national and state level in December 2018. And here we are in the year 2020, discussing the prospects of investing in marijuana stocks.
7 steps to invest in marijuana stocks
Let’s go over the fundamentals to make sure that you are well-equipped to dive into the world of marijuana stocks.
Marijuana stock is like any other stock!
Yes, you heard that right.
The broad rules of investing are constant for any stocks, and marijuana stocks are no exception to this phenomenon.
You have to be willing to do research and fact-finding before finalizing your investment decisions.
Following steps will be invaluable in understanding a company’s profile:
- Research the executive level management to understand the credibility and professionalism of a company. You will also be able to look into the company culture, which is a healthy indicator of differentiating a well-managed company from fraudulent ones.
- Go through the recent financial reports of the company to observe the company’s earnings growth.
- The stock market can be extremely volatile to external shocks and events, so you should pay close attention to indicators that reflect the stability of a company in the face of economic shocks.
- The relative strength of a company in the cannabis industry will distinguish penny stocks from blue-chip companies. If your company of interest has growth potential and prospects that it’s a great sign of a reliable company.
- The price-earnings ratio is also an important measure when comparing various marijuana stocks. It is a ratio of stock’s price with the company’s earnings, where a higher ratio indicates an increased likelihood of significant growth in the stock price.
- Dividends are usually the most sought-after variables when it comes to investing in a company. As a rule of thumb, focus on companies that pay modest dividends with a gradual year-on-year increase. Unusual spikes or dips in the dividends without any significant reason is never a healthy sign.
The legal status of the stock
Even though we have emphasized that marijuana stocks are entering the mainstream, it also means that numerous fraudulent companies have been set up to induce novice investors who are after quick returns.
In this regard, the company’s investor relations websites can offer valuable insights into the views of previous and current investors about the credibility and performance of that company.
Apart from bad companies, there is a looming danger of the US Department of Justice taking strict action against the cannabis industry.
This would consequently hurt the profitability of marijuana stocks. To this end, the best you can do is to stay updated on cannabis-related news and regularly follow articles that provide insights into the sentiments of the investor’s fraternity.
It is useful to remember that market sentiments shape the market direction.
Therefore, if you can develop a sense of the market, you will be able to make effective and profitable decisions.
Determining the amount to invest
This step may be common sense, but it serves well to have a long-term view of how much you can afford to allocate to investing. Even if you have a healthy risk-appetite, market conditions can lead you to prioritize emotions over logic. This imbalance can lead to unfortunate losses if you invest beyond your financial constraints.
A golden rule is: “Never invest more than you can afford to lose.”
It may sound scary, but this rule will serve as a useful navigator when starting your investing journey.
Choose a good broker
Once you have decided on the company to invest in after hours of research (hopefully), it is time to pick a reasonable broker. A broker can be a reliable point of contact to understand the state of the market and other intricate details that may require an urgent response.
Buy the stock and sell it soon
The first phrase may be intuitive, but here’s the catch: There are two types of buy orders when it comes to investing in stocks.
You can either choose to purchase the stock at the market price or set a lower bound at which the buy order will be automatically executed once the stock price reaches that lower bound price.
On the flip side, the selling aspect is more of a personal decision to make.
If you think that the current stock level exceeds your comfort level and that you require liquidity in your asset profile while ensuring a reasonable profit, then sell the stocks if the market conditions seem favorable.
The proceeds can be utilized for reinvestment or personal expenditure.
In the latter case, don’t forget to take it easy!
Cannabis stocks are a trending topic in the investing sphere. The attractive profile of the overall industry is a good rationale for someone like you to try your luck in the newly developed equities. Although luck plays some role in deciding your earnings, it is indeed secondary to your wealth of information that is collected through dedicated hours of research.
We are confident that positive results await as you embark on the journey to invest in marijuana stocks.
As long as you follow the news, read up on relevant articles, and follow the fundamentals outlined in this guide, you can be positive to reap great benefits from the expanding marijuana industry!