How to Invest in the New and Rapidly Expanding Marijuana Market
To date, more than half of the United States has some form of legalized cannabis program, which has led to a boom in marijuana entrepreneurship. Thanks to the trends in marijuana legalization, there is now a whole new industry for investors and entrepreneurs to explore business and investment opportunities.
And with hemp recently legalized on a federal level with the passing of the Agriculture Improvement Act or 2018 Farm Bill, industrial hemp joins medical marijuana and recreational marijuana as a new sector worth looking into for business ideas or investments. In this guide, we will discuss how you can invest in the new and rapidly expanding marijuana market.
Become a Marijuana Entrepreneur
Starting your own cannabis business is ideal for entrepreneurs who prefer to be on the front lines of the industry. If your state has both legalized recreational and medical programs, you have more opportunities to explore. There’s also the industrial hemp sector, which is predicted to become a multi-billion industry.
There are a few primary kinds of marijuana companies – marijuana growers, cannabis retail stores, extraction labs and manufacturers, and ancillary product and service providers. Marijuana growers are also referred to as cultivation or grow facilities. Cannabis retail stores or dispensaries are ideal for the entrepreneur who enjoys interaction with the consumers. Ancillary product and service providers are businesses that provide relevant cannabis services, such as marketing agencies, security companies, payment processors, and so on. This is ideal for the entrepreneur that prefers not to “touch” the plant.
Because the legal cannabis industry is fairly new and highly regulated, becoming a business owner will come with its challenges. Most states with marijuana programs, whether medical, recreational, or both, will have a limited number of business licenses to award. Therefore, the application process was designed to be rigorous and highly competitive. Licensing is merit-based, and securing a coveted application will require the expertise of cannabis advisors and industry experts.
Invest in Cannabis Companies Listed on the Stock Exchange
Not all states have a marijuana program, leaving many hopeful investors wondering how they can take advantage of the explosive cannabis marketplace. The good news is that business ownership isn’t the only channel for you to participate in what is predicted to be a highly lucrative industry. Beyond business ownership, you can still profit from cannabis by investing in marijuana stocks.
Between 2014 and 2018, the cannabis industry has more than tripled in worldwide sales – making it a $10.9 billion industry by 2018. Experts predict that the global cannabis market will reach over $66 billion by 2025. With forecasts like these, it’s no wonder the marijuana industry is attracting more and more investors.
Investing in the stock market exchange is an excellent way for you to enter the marijuana scene as a beginner. It’s also the ideal place to start if you have plans to put up your own cannabis business in the future. A good place to start is to put your money into marijuana businesses listed on the stock exchange. The following are the types of cannabis businesses that you could potentially invest in:
- Agriculture technologies
- Ancillary products and services
- Biotech companies
- Consulting services
- Consumption devices
- Cultivation and retail
- Cannabis products and extractions
- Holding companies
- Industrial hemp
- Organic farms
Before you invest in anything, do your research and understand the potential risks. Be thorough in your analysis of the opportunities available to you. This will help you narrow down your list.
Tips on Investing in Marijuana Stocks
Some may say that marijuana stocks or pot stocks are some of the most volatile. However, they are not any more unpredictable than any investment in the stock market. Therefore, approach investing in marijuana stocks with the same principles you would for any kind of stock. It requires the same diligence to research the company and identify whether its poised for growth. Pay attention to trends, monitor the news for relevant changes in the industry, and understand all the factors that may impact the company’s future profitability. Here are essential steps to take before buying cannabis stocks:
Understand the different types of cannabis products – There are two primary types of marijuana products – medical marijuana and recreational marijuana. Generally, there are more business opportunities in the recreational cannabis or adult-use marijuana sector. Medical marijuana typically only applies to patients with qualifying conditions; therefore, use and purchase is only allowable by prescription.
You should also understand the difference between cannabidiol (CBD), tetrahydrocannabinol (THC), and industrial hemp. CBD is only legal on a federal level if it was derived from hemp and has THC levels of no more than 0.03%. The psychoactive THC remains illegal. The federal government has recently legalized hemp, which is said to have over 25,000 industrial and commercial applications.
Evaluate the company’s potential – Look at the strength of the company’s management team. What is their growth strategy and competitive position?
When analyzing a marijuana company, learn more about their value proposition to see if the company can demonstrate what differentiates them from the competition. While many cannabis businesses are still in their early stages and may not yet be profitable, it will help to check if they already are. You can do this by following the company news. A strong balance sheet is also a good indicator of near future profitability.
Understand the risks – Because the legal cannabis market is still in its infancy, and rules and regulations are ever-changing, it’s crucial to understand the legal and political risks of investing in pot stocks. The marijuana industry dynamics shift rapidly because the marketplace is still learning and evolving. This is where it pays off to monitor cannabis laws, industry news, market trends, top marijuana stocks, and investing strategies.
Cannabis business ownership isn’t the only option for you to invest in the cannabis industry; you can also become a stock investor and buy pot stocks from the marijuana companies listed on the stock exchange. But before you start investing, it’s important for you to learn as much as you can about the cannabis industry, the different business types, and marijuana products. To lower the risks of investing in cannabis stocks, evaluate the company’s potential for growth and profitability.