A Complete Guide on How to Invest in Marijuana in 2024
If you ever wondered how to invest in marijuana and cannabis stocks, follow this guide to learn all about the steps you need to take before deciding to put your hard-earned cash into weed stock.
In this article, we’ll give you some pointers on the different types of marijuana stocks and the potential risks you need to be aware of.
So, without further ado, let’s get going!
Should You Invest in Cannabis Stocks Right Now?
The pandemic has also left a significant mark on the cannabis industry. While cannabis sales boomed in some states, recreational cannabis retailers in tourist destinations like Las Vegas lost many customers.
In other words, investing in cannabis has seen its ups and downs, with marijuana companies still struggling to stay afloat in a market that is volatile at best.
But, things are looking up since more and more people are interested in learning how to invest in marijuana industry.
Moreover, as the industry matures and stabilizes and more job opportunities are created, long-term expectations are still in play, and investing in weed will once again be seen as a profitable opportunity.
Not to mention that projections regarding the industry’s growth remain strong with estimated sales reaching $50 to $200 billion by the end of the next decade.
On top of that, marijuana stocks managed to outperform the equity markets since Joe Biden was elected President.
With that out of the way, let’s get down to the details of what to do and what to take into account before taking the plunge and investing in the marijuana market.
Learn About the Different Types of Marijuana Products
How to invest in marijuana? Get an overview of the marijuana industry and the types of weed available on the market — medical and recreational marijuana.
Medical cannabis is currently legal in 36 US states, including the District of Columbia. However, to buy medical marijuana, you need to suffer from a medical condition and have a written recommendation from a doctor.
That said, not all states have the same qualifying conditions and not all physicians are willing to recommend medical cannabis for their patients, a point to keep in mind when considering how to invest in medical marijuana.
Medical marijuana is mainly used to manage pain, muscle spasms, and some forms of epilepsy and seizures. CBD and THC are the two most commonly used cannabinoids to treat medical conditions.
It should be noted that there are over 100 cannabinoids in the cannabis plant, all of which are waiting to have their health benefits explored.
This means that in the future there might be other cannabinoids (CBG is all the rage right now) on the medical marijuana market and more chances for those interested in investing in cannabis.
At the moment, the FDA has approved one CBD-based drug—Epidiolex. Epidiolex is used as a treatment of LGS and Dravet syndrome, rare forms of epilepsy in children.
It was approved by the FDA in 2018 and was given the green light in the UK in 2020. The FDA has also approved three synthetic THC medicines — dronabinol (Marinol, Syndros) and nabilone (Cesamet) — for the treatment of the side effects of chemotherapy.
What does this mean for those wishing to to learn how to invest in medical weed?
When buying medical marijuana stocks, potential investors should focus on the company’s drug pipeline and the money it spends on research.
Since research on the medicinal properties of cannabis is still in the early stages, investors should expect to wait a bit longer to get a return on their investment.
Just look at GW Pharmaceuticals, one of the biggest players in the medical cannabis industry. It took them 19 years to develop a drug and get it approved. If you are willing to wait, investing in medical marijuana could pay off in the long run.
Recreational cannabis is legal in 19 states, including Washington, D.C., and Guam.
Unlike medical marijuana, which mainly focuses on CBD, recreational cannabis primarily uses THC, the psychoactive compound of the cannabis plant, giving users the high they usually seek when consuming weed.
Therefore, if you want to learn how to invest in marijuana, the adult-use cannabis market shows more promise.
However, there are two obstacles investors should be aware of that are stopping the adult-use cannabis market from reaching its full potential: legalization across the nation and high taxes imposed by the states.
Different Types of Marijuana Stocks
Investing in pot stocks should not be attempted unless you know the different kinds of marijuana companies on the market. Basically, there are four kinds of weed companies:
Growers and Producers
These are the companies that cultivate cannabis and the dispensaries that distribute and sell the products.
Green Thumb Industries (OTC: GTBIF) currently has one of the best marijuana stocks to invest in.
Why? First of all, in the first quarter of 2020, Green Thumb Industries managed to become the first US cannabis company to exceed $100 million in revenue.
Secondly, the company’s revenue increased 14.1% (sequentially) and 85.4% (year-over-year) reaching $221.9 million. And lastly, during the first half of 2021, Green Thumb’s revenue increased 87.3%, reaching $416.3 million.
Biotech and pharmaceutical companies are focused on developing and producing cannabis-based prescription drugs.
The biggest company in this area is GW Pharmaceuticals (NASDAQ: GWPH). In fact, GW stock is one of the best marijuana companies to invest in 2022, especially since Jazz Pharmaceuticals (NASDAQ: JAZZ) acquired GW Pharmaceuticals in May 2021.
Ancillary Product and Service Providers
This category covers companies that sell marijuana-related products, such as equipment and lighting systems, and providing management and consulting services.
Scotts Miracle-Gro (NYSE: SMG) is regarded as the leading provider of hydroponics products for cannabis cultivation and a leading company in the service sector of the cannabis industry.
The company recently reached breaking sales records of $4.19 billion for the fiscal year (ending September 30).
Exchange-Traded Funds (ETF)
For beginners needing tips on how to invest in cannabis but who are afraid of the risks of investing in single stocks, there are always exchange-traded funds (ETF).
A marijuana ETF is just like any other ETF on the market — a collection of securities in a fund that tracks an index, in this case, one related to the legal marijuana industry.
Investing in the said ETF, like all other investments, comes with its own pros and cons.
One of the biggest advantages is that ETFs provide diversification, an essential strategy in terms of investing in cannabis stocks and the market in general.
This means that you can own equity in different cannabis companies that operate in various segments of the marijuana market, from growth and retail to tech solutions.
Another benefit is that you don’t have to know how to invest in cannabis stocks because someone else will pick the right stock for you.
That said, ETFs are a long-term investment that would make them suitable stocks for beginners and experienced investors.
The risks involved in investing in ETFs are pretty much the same as investing in the marijuana industry: exposure to an unsteady market, lack of regulation, and an uncertain future.
The Best Cannabis ETFs in 2022
- ETFMG Alternative Harvest ETF (NYSEMKT:MJ)
Experts say that with stocks from more than 30 marijuana companies and an expense ratio of 0.75%, ETFMG Alternative Harvest ETF is an attractive option for investors in 2022. The best holdings of this fund are Tilray (TLRY), GrowGeneration (GRWG), and Canopy Growth Corp. (CGC).
- The Cannabis ETF (THCX)
The Cannabis ETF is another one of the analyst-recommended marijuana stocks to invest in 2022. Unlike other funds, it intends to mirror its tracking index, the Innovation Labs Cannabis Index — hence why it is rebalanced monthly (instead of quarterly like other ETFs).
Also, as a passive investment vehicle, it has the lowest expense ratio of 0.7%. Compared to other funds, The Cannabis ETF mainly focuses on companies that cultivate, produce or distribute cannabis for medical or recreational purposes.
Its top holdings are Tilray (TLRY), Canopy Growth Corp. (CGC), and Village Farms International (VFF).
- Cambria Cannabis ETF (TOKE)
Cambria invests 80% of its net assets in marijuana companies across a broad market capitalization spectrum of micro-, small-, and mid-capitalization stocks. It also has a low expense ratio of 0.42%.
Its top holdings are Tilray (TLRY), Innovative Industrial Properties (IIPR), and Constellation Brands (STZ).
Risks of Investing in Marijuana
The part of understanding how to invest in marijuana penny stocks, or any marijuana stocks, is being aware of the potential risks.
The OTC Issue
The biggest hurdle that the cannabis industry faces is legalization on a federal level.
Since marijuana is still illegal in many US states, most American cannabis companies cannot appear on top stock exchanges like NYSE and Nasdaq. Instead, they have to list on the Canadian stock market or choose the option of trading on over-the-counter US exchanges.
Before they invest in marijuana, investors have to be fully aware of the risks involved in buying OTC marijuana stocks.
For one thing, they are not subject to strict regulation, as companies on major stock markets. Meaning it is more difficult for investors to assess the company’s actual state.
OTC exchanges do not require companies to file regular financial statements and maintain minimum market caps.
The Cannabis Market Is Still a Nascent Industry
While you can learn how to invest in marijuana, you can’t know what will happen to the cannabis industry and marijuana stocks in the future. Like all other industries, the weed market needs time to mature and develop.
Issues with Supply and Demand
Ever since Canada legalized the recreational use of marijuana, growers have been rushing to produce as much cannabis as possible to meet the rising demands.
Analysts predict that despite the growth in demand, particularly in Europe, where Germany’s medical marijuana market is expected to drive sales, there will be an oversupply of cannabis. This will likely impact stock prices and the process of investing in weed stocks.
Pick One of the Good Companies to Invest In
What are some of the best marijuana stocks to invest in 2022?
High Tide Inc. (NASDAQ: HITI)
According to Nasdaq, High Tide Inc. is the one to keep an eye on in 2022. This Canada-based company is a leading enterprise operating across Canada, the US, and Europe.
Its brands include Meta Cannabis, Canna Cabana, NewLeaf Cannabis, Smoke Cartel, Grasscity, Daily High Club, CBDcity, DankStop, and FAB CBD.
Tilray Inc. (NASDAQ: TLRY)
If you are looking for tips on marijuana stocks to invest in, you can’t go wrong with Tilray.
This pharmaceutical and cannabis company supports over 20 brands in over 20 countries. It recently announced the launch of medical cannabis edibles such as CBD and THC chocolates and gummies.
Cronos Group Inc. (NASDAQ: CRON)
Cronos Group Inc. is another one in the series of the best marijuana companies to invest in this year. The company is also backed by Altria, one of the world’s largest producers of tobacco.
In late August, Cronos partnered with cell programming company Ginkgo Bioworks. This fall, the company plans to launch its new CBG products.
Do Your Due Diligence
Needless to say, you should never put your money blindly into hemp stocks.
Think carefully about how to invest in marijuana stocks and research the company beforehand. But, what does this actually involve?
- Look into the management team — who runs the company, and how much experience does the business team have?
- Research the company’s growth strategy, especially its long-term strategy, which is crucial to the survival of a business.
- Compare it to its rivals — how does the company fare against its competition, and how does it plan to stand out in the market?
- Look into its financial status and ask yourself: Is it profitable? Is it one of the best marijuana stocks to invest in right now? How does it plan to fund operations in the future?
- If you are looking at cannabis growers, make sure to learn all about the all-in cost of sales per gram and cash cost per gram of producing marijuana (which does not include amortization, packaging costs, and inventory adjustments).
- Find out about the company’s distribution channels. It is vital to learn whether the company targets local areas or whether it can export overseas. You need to understand how to invest in the marijuana industry in the right market. Sure, a bigger market equals more opportunity, but it also increases risks.
- Make sure you check SEC filings or consult a professional to get this information. Press releases usually put a positive spin on the company. In some cases, you can better gauge the general sentiment towards a stock on social media than by reading the company’s press releases.
Decide on the Amount You Want to Invest
Marijuana stock is not without its risks, so the best pointer on how to invest in weed stocks is to start small.
To be on the safe side, trust the motto to never put in more than you can afford to lose. If your investment plays out, you can always add more shares later on.
What about the alternative? What if you go “all-in” on a stock, and it goes down? Or, if you sell a stock but later find out it is profitable, would you repurchase it at a higher price?
The best advice on how to invest in weed is, according to analysts, “trading around the core.” I.e., buying small portions when the pot stocks are declining and selling small amounts when stocks are improving.
We admit this is a lot of effort, but if you are willing to put in the work and time, it might just pay off.
Keep a Close Eye on the Changing Market
Be on the lookout for new marijuana companies to invest in, as well as changes to the federal law regarding marijuana legalization, progress with Cannabis 2.0 in Canada, and the growing European market.
All markets experience highs and lows; however, since the cannabis industry is changing more rapidly than others, monitoring marijuana news and cannabis stocks is a must.
Some Bonus Tips
- Establish a timeline for your investment. Decide when you want to sell or buy, which is easier said than done, but it never hurts to have a plan beforehand.
- Suppose you want to invest but are still unsure how to do it right. In that case, there are always investment advisory services or companies that will provide you with advice or counsel on how to invest in pot stocks and pick the best cannabis stocks.
- If you are more conservative, invest in companies that deal with more than just cannabis. For instance, the core business of Constellation Brands or Scotts Miracle-Gro is not cannabis, which makes investing in these companies less risky.
- Invest in CBD. CBD oil brands are making a fortune. Also, from CBD extraction-service providers to producers and retailers of hemp-based products, there are plenty of options in terms of investment. According to experts, the CBD market will be worth $5.3 billion by 2025.
When it comes to playing the stock market, there are no guarantees. Trying to profit from pot by investing in stock may not be the safest option, as even some aggressive investors tend to stay away.
Therefore, it’s essential to learn all about the cannabis industry, the types of marijuana stocks, and the potential risks you might face.
That said, if you play your cards right and take all the necessary precautions, you might just strike gold.
Is Stash invest legit?
Yes, Stash is a legit registered investment advisor. Its investment application can be used by experienced investors who are looking for guidance, beginner investors, and thematic or impact investors. The app comes with a Green Dot Bank account.
As an investor, you can use Stash to buy stocks and ETFs without the minimum requirements. Stash charges $1–$9 per month.
How do I buy stock in Cresco?
To buy Cresco stocks, you need to open a brokerage account that allows OTC trading (Robinhood doesn’t permit the trading of OTC stocks) or use a traditional brokerage (TD Ameritrade, Webull, and TradeStation). You can also use Stash to buy Cresco Labs stocks.
Is Curaleaf a good buy in 2022?
Yes, according to market analysts, Curaleaf is a good buy. In fact, Curaleaf’s stock went up by 103% over the last three years.
What’s more, the company’s year-over-year revenue grew by a whopping 170%, reaching $260 million, while its retail revenue went up by 231%, amounting to $188 million.
Curaleaf holds 108 dispensaries, 30 processing and 22 cultivation sites in 23 US states. It plans to expand internationally by targeting the German medical cannabis market, where it has already launched its medical cannabis products.
So, if you don’t know how to invest in marijuana, Curaleaf could be a good company to start with.