Over the last few years, the cannabis sector has been the place to be for stock investors. It is undoubtedly one of the hottest markets around, with a May 2019 report expecting the cannabis market to be worth USD $66.3 billion by 2025.
At the same time, investing in a hot market can be a tricky affair. Cannabis has seen some of the biggest swings in share prices, as companies went from undervalued to overhyped. As well, cannabis is still a relatively nascent industry and illegal in many parts of the world, so uncertainties about the industry’s longevity can have a big impact.
If you’re looking to invest in cannabis stocks, the best advice is to treat it like any other investment and make sure you do it right. The key is to understand the different types of cannabis companies and know what to look for (and what to avoid).
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Firstly, the cannabis industry has many different types of companies operating in the space. Cultivators focus on growing cannabis plants for market or manufacture, while other companies focus entirely on manufacturing cannabis products or retailing to consumers. There are also biotech pharmaceutical companies focused on developing products that use the compounds found within cannabis, as well as ancillary service providers that support the entire industry.
Secondly, the cannabis market has many different products with different market potentials. Flowers containing the psychoactive component of cannabis, THC, are the most common and well-known products in the market, but THC products remain illegal in many parts of the world.
On the other hand, products containing CBD, another compound found within cannabis that is used for medicinal purposes, are legal to sell in many places and quickly establishing a big market.
Moving past flowers, you can also find that many companies (and consumers) are looking at other ways to ingest cannabis. You can find THC and CBD infused into edible goods, pure oils and extracts, creams, and other derivative products.
So how do you find a good cannabis company, and what are you supposed to look for? The most important thing is to do a healthy amount of research. What types of products does the company make? How does it run its operations? Does the management team look experienced and vetted? Don’t get caught up in the hype and make sure that all of the pieces are aligned.
Another helpful tip is to make sure the stocks you picked have many good opportunities. If a cannabis company is vertically integrated, for example, it can make money from cultivation, manufacturing, and retail, so it can adjust or capitalize if one proves more promising than the others.
On the same note, the more agreements, partners, and distribution deals it has in place, the more insulated it becomes from something affecting one market. If one country’s market dries up or makes cannabis illegal, for example, it’s important to distribute to other hot markets as well.
In the end, even if cannabis stocks aren’t for you, you should learn about the industry and pay attention to the key players and market trends. As the cannabis sector expands, more companies will find themselves partnering with, or becoming, cannabis companies. Having been a big part of the markets for a few years, cannabis will undoubtedly continue to be a major investment opportunity going forward.
New to investing in Cannabis? Check out Stockhouse tips on some of our Top Cannabis Stocks.
For more of the latest info on Cannabis, check out the Cannabis Trending News hub on Stockhouse.