There are now 19 states that have legalized adult-use cannabis and it looks like even more are gearing up to do so in the coming year. Marijuana is a booming market and consumers are climbing over each other for a chance to buy legal weed. According to New Frontier Data, the global cannabis market is expected to make $51 billion 2025. Not everyone can open a shop to capitalize on all the cash that’s being thrown around, but investing in cannabis is easier than ever. You can even invest in marijuana businesses through your normal brokerage account. But be prepared for a wild ride. Cannabis stocks are still riskier than others.
That’s because many cannabis stocks are still young and cheap. While we’re still in the Wild West of cannabis legality and the market remains immature and wet behind the ears, it will be difficult to bet on a winning company. Historically speaking, most players in a new market will eventually fail and be replaced by bigger and better players who will have the advantage of seeing how things play out in the early days. This could spell doom for most cannabis investors, but for the lucky few who hitch their rides to one of the rising stars, it means a cheap buy into a fruitful investment.
Like all trading, it’s a gamble, but this one’s particularly steep.
If you’re still here and looking to play, remember that the name of the game is due diligence. Take the time to research the industry and the products before you get ready to lay your money down. The good news is that marijuana stocks have been trending down in the last few months and they really are cheaper than ever.
Many potential investors will immediately leap to throw money at their favorite multi-state cannabis corporations, but they would do well to remember that there are a number of subsectors peripherally related to the production of cannabis that will also be enjoying the fruits of legalization. Look for companies that provide technology and infrastructural support to industry players like gardening manufacturers that work with weed companies or biotech firms that are operating in the industry. An added bonus to investing in subsector businesses is that they are often operating in completely safe and legal spaces, making them less risky to work with than actual cannabis companies.
If that level of research seems like too much of a pain, but you still want to gamble on the popularity of weed, look into cannabis exchange-traded funds (ETFs). These funds offer up the opportunity to invest in a group of securities that have been cultivated by a brokerage firm. It takes a lot of the heavy lifting out of choosing individual stocks.
There are a number of cannabis ETFs to choose from and picking the right one for you is a personal matter. But some of the popular ones to pay attention to are the ETFMG Alternative Harvest ETF (MJ), the AdvisorShares Pure Cannabis ETF (YOLO), AdvisorShares Pure U.S. Cannabis ETF (MSOS) and the Global X Cannabis ETF (POTX).