It doesn’t matter what you think about medical or recreational cannabis use – you can be for it or against it, but one thing is for clear: Canada’s legalization of marijuana has opened up doors to a wide array of exciting and possibly lucrative investment opportunities for investors both new and old.
That’s why it’s called the green rush.
But every opportunity also opens up a slew of questions and challenges – one being banking on the financial viability of Canadian marijuana stocks in an industry with differing hot takes, fractured global policy, and convoluted legal guidelines. That’s not typically something savvy stock market operators are fond of, which doesn’t make it easier for the rest to figure out a plan to invest in recreational or medical marijuana stocks in Canada.
That said, with all the rumor and innuendo going surrounding “green” stocks, it’s good to sit down and take a close look at how exactly to go about investing in marijuana stocks. Are they really worth the time and bother to add to your stock portfolio? Well, the more you know, the better you’ll be prepared to make the right decision – let’s find out.
Know What You’re Getting Into
If you’re looking for a “sure thing” – and nothing ever is, even in other industries – then investing in Canadian medical or recreational marijuana stock is probably not for you. It’s not for people who are averse to risks.
Marijuana stocks are extremely volatile, and many people who have invested in such stocks have done so solely for the hype that was drummed up around them as the “next big thing”.
While that may certainly be the case for some of the blue chips in this sector, you cannot ignore the key factors that make for a good investment, such as the company’s value proposition, products, and fundamentals. There’s a lot of action in this particular market, and a lot of volume moves in and out of marijuana stocks.
That said, due diligence is absolutely imperative if you want to invest in pot stocks, and always play only what you can afford to lose. Decide on your bankroll, and set your stop losses – and above all, stick to them. Research on companies and industry trends. Then – and only then – should you consider investing in marijuana stocks.
Why Invest in Marijuana?
The answer is simple: because of legalization around the world. Governments that once prohibited marijuana in all forms are now starting to craft rational policy governing the legalization of recreational and medical marijuana use in their respective countries.
Canada has led the way in many respects as far as legalization is concerned, and legalization was introduced in October of 2018 – followed by the legalization of cannabis-based food and drink items (more commonly known as edibles), which bodes well for the sector in the coming years. And it is only poised to continue growing as more innovations and new products are developed.
Key Factors to Examine (Before Investing)
With that said, what should you look for in a marijuana stock before you invest in it? Well, it’s not too different from investing in any other company in any other established sector.
Profitability is dictated by factors like revenue generation and production capacity. Granted, while most marijuana companies aren’t taking the world by storm as far as profitability is concerned, time-tested valuation methods don’t yet apply to them. Rather, investors should look at the following:
- Growth in sales. How is the company performing in achieving their sales targets? Are they constantly falling short of the mark? Research and find out if the company is growing in alignment with their goals.
- Growth in production. The same is true for production – is the company achieving its production targets? Does it have access to capital to drive growth, operations, and production?
- Profit margins. How are the sales prices of their products holding up? Are production costs commensurate to the sale price of their products? Are they increasing, in decline, or generally steady?
- Access to partnerships. Partnerships are essential for the long-term viability of any product – marijuana included. Do they have any? If so, how many? With whom?
- Access to capital. Balance sheet health is crucial in determining whether the company has enough capital – or access thereof – to achieve its goals.
- Potential for profit. Again, it must be noted that profitability isn’t of paramount importance – but it is definitely a big plus.
How Can You Invest in Cannabis?
You’re probably reeling from all this information about investing in recreational and medical marijuana stocks in Canada.
But now comes the fun part – the actual investing. Fortunately, there are more ways you can participate in this industry than you can shake a stick at depending on your risk appetite and the approach that you are comfortable with.
Here are some ways you can participate in marijuana stocks:
- Getting in touch with a financial advisor. If you are working with a financial advisor to look after your finances, make sure to ask them about investing in marijuana stocks. They will be able to paint a clear and realistic picture of what you want to achieve and what you want to get out of your participation. Ask your bank account manager or seek the advice of a licensed financial advisor, especially if you are unfamiliar with the various ways you can invest.
- Online brokerage platforms. If you don’t need as much close assistance and have more investing experience, you can opt to buy marijuana stocks with online brokerage platforms, where you can buy as many financial instruments you want on your own. Financial advisors are also available at your beck and call for these platforms, but you probably won’t have a dedicated one. This will turn off investors who prefer the personal touch of having one that is familiar with their needs and wants, or those who are novice investors that need help using their platform.
It’s easy to lose yourself in the novelty and hype of investing in an exciting, promising, and definitely contentious industry.
The fact of the matter remains: there is no one-size-fits-all answer to every question about investing in marijuana stocks. Also, marijuana stocks are volatile and subject to rapid changes, with price fluctuations that happen on essentially a daily basis.
In the end, due diligence and comprehensive research in the budding recreational and medical marijuana industry can lead to a windfall if done the right way – just make sure to keep your head down and stick to these principles, and be realistic about your expectations in adding marijuana stocks to your investment portfolio.