What to Know Before Investing in Cannabis Stocks

Marijuana companies have been popping up all over the place for the last several years.

They’re emerging to supply the booming medical and recreational trade being legalized all around the world. For investors this represents an amazing chance to get in on the ground floor of a rapidly growing industry.

Before you hit that buy button though it’s important you know what you’re getting into.

This guide will help explain the state of the marijuana industry and what you need to know to successfully invest in pot stocks.

The Legal Cannabis Industry is in its babyhood

Have you ever heard of the American Motor Car Company? The Adams Company? How about the Acme Motor Car Company?

All of these were promising automobile manufacturers right after the internal combustion engine was created. They had products, they could talk the talk, and they all folded within a few years of opening up.

Right now the legal cannabis industry is in a similar position to the automobile industry in the early 1900s. There’s a lot of excitement about this emerging industry and a big push to get in on the ground floor to maximize your gains.

Unfortunately many people downplay the risks of investing in early startups in emerging industries. For every Amazon there are thousands of companies that operate for a few months or years then close up shop.

You’re Mostly Investing in Canada

Right now marijuana is still illegal at the federal level in the US. What this means for potential investors are that most stock exchanges and major financial institutions won’t touch a company that has anything to do with the industry.

There aren’t really any American cannabis stocks available to invest in. Investing abroad has its own share of risks and potential headaches.

Depending on where the particular company is located you’ll have different levels of access to financial data. Some foreign markets don’t have the same reporting standards as US stock exchanges.

Watch Out For Scams

Any time there’s a speculative frenzy surrounding a new industry there are going to be some bad actors looking to profit. We saw it in the dot com bubble of the 2000’s and the massive rise of cryptocurrencies in 2017.

Make sure you thoroughly understand and research any pot stock you’re thinking about investing in. One of the most important things to keep in mind when figuring out how to invest in marijuana stocks is an understanding of the business.

If you can’t explain what a company does and what their plan to do it is you really shouldn’t be investing in them.

Don’t Expect a Lot of Institutional Help

Just like how you won’t find American cannabis companies listed on stock exchanges you’ll have a hard time finding financial advisors willing to give you cannabis advice. The whole industry is currently sitting in a legal gray area that financial institutions are unwilling to get involved with.

That makes it doubly important that you do your research and learn how to invest in marijuana stocks before making a purchase. You’ll basically be creating a portfolio in a DIY fashion.

You need to have your strategy fully mapped out and have the discipline to stick to it. With most industries you can just direct your financial planner or broker to invest in a broad basket of stocks.

With marijuana stocks you don’t have that luxury.

Never Invest More Than You’re Willing to Lose

At this point in time investing in the marijuana industry is highly speculative. It isn’t entirely clear what the legal marijuana business is going to look like or who the major players are going to be.

Because of this you should treat any investment in a marijuana stock as a high risk/high reward kind of thing. You shouldn’t put your entire retirement savings in pot stocks is what we’re saying.

If you’re the kind of person who loves a challenge and isn’t afraid to take a few risks though there are tons of ways to make a killing investing in emerging cannabis stocks.

Don’t Psych Yourself Out

Most people thinking about investing in marijuana stocks are going to be at least somewhat familiar with how the industry works. As long as you keep the above concerns in mind and plan around them there’s great potential for profit and growth.

 

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