How to invest in cannabis stocks

The consumption of cannabis is proving to be more than just another fad, with the industry predicted to be valued at $31.3 billion by 2022. Arguably, now is a better time than ever to invest in publicly traded cannabis stocks, but what do investors need to know before they get started?

Below, we take a look at the different types of cannabis stocks, the risks involved with investing in them, and how to monitor an industry that constantly changes. 

The different types of cannabis stocks

As there are different types of cannabis, there are different types of cannabis stocks. The two main types of cannabis are medical and recreational. Within these definitions, there are different types of products – each with different regulations, access, and supply chains. 

Before investing, you will need to decide which type of cannabis stock to invest in. You can choose between cannabis growers and retailers, cannabis-focused biotechs, or providers of cannabis services. These groups range from companies that distribute end products to consumers to those that carry out research and development with cannabinoids

What sort of cannabis stocks you can invest in will depend largely on where you live, too. Medical cannabis, for example, is legal in 33 American states but is still illegal in other parts of the world. Recreational cannabis is legal in Canada, but highly illegal in the UK. Not all types of cannabis stock will be available to you. 

Keep regulation in mind

There are a number of factors that make investing in cannabis stocks high risk. The largest influence, of course, is regulation, and it can change at a moment’s notice. In the worst-case scenario, a change in regulation could lead to businesses shutting down. 

This was seen in the UK when a UK farm was forced to destroy £200,000 of hemp crop after being denied its license. Where companies are shut down with such speed, you could lose a lot of money – depending on how much you’ve invested. 

Be aware of changes in supply and demand

Another issue facing the industry is that of supply and demand. Many companies are expecting to have tremendous growth in value over the next few years. Production capacity has grown exponentially for many businesses such as Aurora Cannabis Ltd, but what happens when there is more cannabis products than people actually want? 

Usually in this scenario, the price of cannabis would tend to fall. This could have a direct impact on a company’s revenue and earnings. If these fall, then the overall value of the company’s stock prices could fall as well. 

Assess the top cannabis stocks

Before investing your money, make sure you carry out thorough research on the top cannabis stocks. Look at the companies that have the most market cap, explore their recent history, and keep up to date with their latest news. Business reviews could also help you to determine whether or not you should invest your money in a particular stock. 

Some of the top cannabis stocks in different categories include:

  • Aurora Cannabis
  • GW Pharmaceuticals
  • Scotts Miracle-Gro

These are just a few of the cannabis stocks available, and there are many more on the market. By completing thorough research and really knowing a company’s background and its future roadmap, you may be able to feel a bit more confident in your investment. 

Monitor changes within the industry 

While there have been many positive predictions for the industry, there is no guarantee that its future will unfold that way. For that reason, it’s better to take a long-term approach when buying stocks. Investment in cannabis stocks is high-risk because of its volatile nature. It will be important to keep an eye on both the medical and recreational cannabis markets as they are likely to change in different ways. 

To find out more about the cannabis market, make sure you follow The Leaf Desk.