Marijuana Stocks: Are They A Good Investment?
Marijuana Stocks: Are They A Good Investment?
As more and more states in America, and many whole countries as well, are taking the steps to legalize cannabis, now could be the perfect time to invest in marijuana stocks. If you would have spent $1,000 on Netflix stock just ten years ago, you would now have over $50,000 to show for it, and that’s what’s happening now in the cannabis industry
Marijuana Stocks: The Highlights
- Marijuana stocks are investment opportunities in companies that are legally dealing in cannabis
- The cannabis industry is believed to reach a $32 billion worth in 2020
- You can invest in high-risk or safe stocks for different returns
- The profitability of marijuana stocks depends on a high number of factors
- Purchasing premium marijuana stocks is more expensive, but it might produce better returns
What Are Marijuana Stocks?
Just like it may sound, marijuana stocks are investment opportunities in companies that are dealing in legal cannabis. In 2017, the legal marijuana industry was recognized to be worth about $9.5 billion. This is definitely a nice sum of money, but it has grown considerably in the last year. It is now expected to be a $32 billion industry in 2020. This means that the market will have grown 230 percent in three short years. If that doesn’t impress you, you have to think of it as an investor.
Warren Buffett considered a financial genius by many, has made a great living investing in companies. His net worth is just under $90 billion. Furthermore, he has donated another $30 billion to charity. Those dollar amounts are hard to even fathom for 99.9 percent of the rest of the people in the world.
Keeping in mind that the legal cannabis industry is expected to grow 230 percent in the next 36 months or so, Buffett has claimed several times that a person should expect a 6 to 7 percent return in the stock market and be content with that number.
“The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent,” Buffett said. “Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent.”
Marijuana stocks right now could do much better than those number.
In addition, research projects that a huge majority of that $32 billion is expected to be achieved in the United States alone with over $23 billion predicted. As the number of states legalizing marijuana increases, the chance for great success and profit in the sector is growing. If that is not enough, Canada has stepped in and announced that cannabis will be legal in their country starting in October 2018. That is bound to give the industry a major boom.
Where Are Marijuana Stocks Listed?
If you are scratching your head right now and wondering how to get involved in this investment, marijuana stocks are listed on many top sites with everyone announcing their favorite marijuana stocks to invest in. Wall Street has more than a dozen pure-play pot stocks, meaning that these companies have all of their sales related from the sale of cannabis or even cannabis-derived drugs.
Five of these companies are predicted by those at Wall Street to bring in at least $124 million each in revenue next year. Additionally, there are some cannabis companies that are expected to become quite successful that Wall Street has not made available any sales or expected profit information yet. The Green Organic Dutchman and Tilray are only two of them.
Types Of Marijuana Stocks
There are a few more risky marijuana stocks, and some pretty safe ones, that you can invest in. There are speculative stocks, that can already be trading high, but so high that it is a gamble to pay such a premium for them. The name of the game is to make money, and spending so much early on can be a detriment to your profits. If you are a long-term investor or institutional investor, they mostly stay away from speculative stocks unless they are part of a mutual fund or exchange-traded fund (ETF).
Then there are also highly speculative stocks, such as GW Pharmaceuticals and Cara Therapeutics, that are already trading so high that it is questionable if they will produce a nice return anytime in the near future. However, keep in mind that high risk can sometimes pay off in high rewards.
Conversely, there are low-risk marijuana stocks that you can invest in where the cannabis part of the business makes up just a portion of what the whole company offers. For instance, Scotts Miracle-Gro is a leader in lawn care and garden business. But they also are selling special soil and nutrients for marijuana plants.
Another example, Corona beer is owned by Constellation Brands and they do quite well in the alcohol business, but now they also have an approximate ten percent stake in the cannabis company Canopy Growth. These are merely two such cases, but there are many more out there where the company you are wanting to invest in is not quite all in and they have their hands in other markets as well. Think of it as a diversification. This means that if the cannabis part of the business tanks, at least your stock will still be worth a good amount.
How to Invest in the Marijuana Industry
There are a few ways you can go about investing in the marijuana industry. As we discussed earlier, one such way is to purchase stock in the company. Another way that you might not have thought of is going to one of these companies and buying into them directly. There are many that are not listed yet on the New York Stock Exchange because they are not ready to go public or have no interest in doing so, but they could be interested in a private investor.
Lastly, if you are all in and believe in the excitement and promise of the legal cannabis industry, you could always start a business of your own offering these goodies to other people.
Investment Risk Factors
Don’t let anyone fool you, no matter how amazing a stock sounds, there is always a chance it will fail. It really is like gambling, and don’t let someone tell you different. The only disparity between the two is investing in certain stocks is like making an educated guess that it will improve over time. Gambling at the casinos takes mere seconds, and most of the time, educated guesses are thrown out the window.
The biggest investment risk factor is knowing that everyone is not on board about legalizing marijuana. One move by somebody in power could doom any investment you make in cannabis stocks. Attorney General Jeff Sessions has spoken out several times against the legalization of marijuana and knowing that he has clout in the political world, it has affected the marijuana industry.
There are questionable regulations at the federal level in the United States against marijuana and it is in direct contrast to the state level in many regions. The power struggle over legalizing it or making it against the law with jail time attached will probably keep many on the fence about purchasing marijuana stocks.
When Will Marijuana Stocks Be Profitable?
Marijuana stocks could be a great investment for some, and not so great for others. It’s like saying all ice cream is good when there are some horrible brands of it out there and a few extremely bad flavors. The profitability depends on a few main things. You have to invest in a quality company with a solid track record and get the stock at a good price. If you are purchasing the marijuana stocks at a premium, it could be a while before you make any money at all on the investment.
Furthermore, marijuana stocks will become more profitable when legislation is completed in more regions making it perfectly legal. It does help that all of Canada is close to legalizing it across the whole country. Maybe the other part of North America is not too far behind.
Are There CBD Stocks?
CBD oil is a type of cannabis oil and is the concentrated liquid extract of the marijuana plant, Cannabis sativa. CBD is talked of as a cure for Alzheimer’s, memory ailments, and even cancer. However, no studies have been completed that substantiate these claims. Still, there are numerous that swear by CBD oil and assert that it has benefited their health greatly. Think of it like fish oil and how people have attributed their health to it.
CBD oil will not make someone high or provide the effect that is attributed to marijuana. And in addition to marijuana stocks, there are also CBD stocks that investors are interested in. It is being viewed as almost a supercharged health supplement by many, and the supplement industry is expected to be worth close to nearly $300 billion in a few years.
Marijuana is not nearly as bad for you as previously made out back in the 1940s and 50s. And now people are realizing it can actually be much healthier for you than many prescription drugs. Plus, it is viewed as having less damaging effects on the body than alcohol. Pot stocks are a booming industry right now with more places legalizing recreational use. If you can find a company that you believe is paving the way in this industry, it would be worth exploring as a possible investment.