**Disclaimer: The information provided on this blog is for educational and informational purposes only and should not be construed as investment advice. The content is not intended to be a substitute for professional financial advice, and readers should always consult with a licensed financial advisor before making any investment decisions. Readers are responsible for their own investment decisions and should conduct their own research and analysis before making any investment decisions.
Whether or not you partake in cannabis, there’s no doubt that the industry is evolving quickly. As more and more states (and countries) legalize the plant, savvy investors are turning their attention to the market – and rightly so.
From cannabis stock to exchange-traded funds ETFs and so much more, there are plenty of ways to invest in the cannabis industry legally. While all investing involves risk, cannabis is a particularly volatile industry due to its federal status as an illegal substance.
Still, those interested in investing in cannabis can do so if they do their due diligence tomitigate the risks involved properly.
With nearly 15 years of experience in legal cannabis advising, 3C knows how to thoroughly vet businesses to determine future profitability and avoid common investment pitfalls. Here is everything you need to know about how to invest in the cannabis industry:
How can I invest in the cannabis industry?
As with any other industry, multiple investment vehicles are available in the cannabis sector. You can:
Purchase publicly-traded shares of stock in cannabis-related companies
Purchase shares in a fund, such as a mutual fund, index fund, or exchange-traded fund (ETF)
Invest in and back acannabis start-up (angel investing, venture capital, etc.)
In addition to all these different vehicles, you can dive deeper into the industry and invest in a specific sector: medical, recreational, retail, agriculture, extraction, and more.
For instance, the application of cannabis in pharmaceuticals and biotech has captured the attention of many investors, notably as the industry anticipates federal legalization in the future.
However you choose to invest, researching the specific companies or funds you want to invest in is essential.
Why is it risky to invest in cannabis?
In an industry where the legal status is obviously hazy, investing involves some inherent risk. From constantly changing legislation and limited government-backed research to the typical considerations of an emerging market, investing in the cannabis industry is tricky.
With that being said, it also comes with immense financial potential. As with any high-risk investment, the potential reward could also be great. Understanding the risks is important to get a full picture of what you’re investing in before you do it.
Here are some reasons why investing in cannabis is considered risky by many in the financial industry:
It is a relatively new industry.
While many states are legalizing recreational cannabis, existing companies still struggle to grow significantly.
There are bureaucratic hoops around becoming a multi-state operator and intense capital needs of a new cannabis business; many cannabis businesses that offer stocks are tiny. As a result, they tend to fall into the penny stock arena, which is considered risky for beginner investors.
Moreover,navigating the volatility of this emerging market takes work. From wide price swings as markets develop at varying rates state-by-state to research not being publicly available, there is much less consistency than investing in a more established industry.
The financial services industry remains wary.
Finance is almost always a little conservative. Due to the federal legal status of cannabis, many banks are reluctant to touch the industry. This is why you may notice that most dispensaries only take cash or debit.
As a result, some investment professionals, such as advisors or portfolio managers, won’t be able to recommend cannabis stocks to invest in. Some may not be able to work with you at all if your employer is a cannabis business.
There are a lot of foreign stocks.
Countries outside the U.S. tend to have much more developed and progressive cannabis industries. For instance, Canada makes up some of the most extensive cannabis stocks available for trading in the U.S.
When investing inforeign cannabis stocks, you may have limited financial data access. For instance, company reports and other metrics that the U.S. may otherwise be required to provide.
From speculative appeal, overvalued stocks, penny stock promotions, and more, dealing with foreign stocks tends to be riskier. Additionally, it could be hard to find legal recourse if an investment is fraudulent.
Is it worth it to invest in cannabis?
You’ve heard the saying: with high risk comes high reward. Investing in cannabis is potentially a tremendous wealth-growing opportunity for a few reasons:
The industry is growing rapidly.
The cannabis industry continues to outperform itself year after year. From thehundreds of thousands of jobs it creates annually to sales predictions and more, cannabis represents a significant growth opportunity for investors.
Diversifying your portfolio is always a good idea.
Diversification does not guarantee a profit or protect against losses, but it can help improve your chances of success over the long term. When your strategy is not centered around cannabis but rather includes it as a piece of the puzzle, you can reduce the overall risk of your portfolio and potentially achieve higher returns.
Investing in cannabis can provide good exposure for investors looking at growth-oriented sectors without losing out heavily should the industry experience a significant decline.
The stigma around cannabis continues to fade.
With increased acceptance, more consumers are exploring cannabis products. Whether that’s medicinal cannabis, recreational edibles, topicals, and more, continued curiosity will drive growth in the industry.
This growth could not only result in a high-reward investment but also lead to societal changes like federal legalization, which would catapult the industry to a whole new level and make investment gains very significant.
The cannabis industry is highly innovative.
Known for its innovation, the cannabis industry is constantly coming out with new products and technologies to improve the quality and effectiveness of cannabis products. From seltzers and juices for consumers to machinery for manufacturers and tech stacks for dispensaries, there is a lot of opportunity for new markets and revenue streams to emerge.
The bottom line
Yes, you can invest in the cannabis industry. However, cannabis investing isn't for everyone, mainly if you prefer low-risk investment options. For investors with higher risk tolerance, you may find the growth promise of the cannabis industry a worthy addition to your portfolio.
As legal as it is to invest in the industry, it's important to remember that it does remain classified as a Schedule II drug. Therefore, it's essential to do your research and consult with a financial advisor before investing in cannabis.
Invest safely in cannabis with CP - Cannabis Portugal. While you can certainly do your research about companies, funds, and other investment vehicles, the complex legal environment of the cannabis industry can make assessing risk accurately uniquely challenging. For instance, sourcing data, identifying trends, understanding political and regulatory frameworks, and more can be impossible. Without good information, mitigating risk may not always be possible if you’re working alone. With a consultant like CP - Cannabis Portugal., you get immediate access to our network so you can actually make an informed decision about your investments. Interested in cannabis investing? CP - Cannabis Portugal can protect your portfolio.