Marijuana is becoming more legal and more popular each day, and business booms around it. Here’s what you need to know about cannabis stock before you invest.
Cannabis stock is giving people a chance to invest in the next gold rush.
As cannabis companies become less regulated, they’re seen as a way for investors to make easy money due to explosive growth over the next several years.
Ex-Speaker of the House John Boehner recently made headlines after he joined the advisory board of a marijuana company. During his time as speaker, he was notably against the legalization of pot. Now, he’s realizing the potential to make money and going all in on cannabis stock.
If you see nothing but green ahead for cannabis stocks, you need to make sure that you’re investing wisely.
Read on to learn how you can invest in cannabis and what you need to keep in mind before you getting started.
How to Invest in Cannabis Companies
If you’re looking to join the cannabis green rush, you’ll want to know the potential ways to invest in cannabis. The industry consists of more than just dispensaries. There are industries that are popping up to support them and more.
You can buy a grower. After all, the cannabis has to grow somehow. Growers are responsible for producing cannabis and creating different strains for recreational and medical use.
Likewise, investing in a nutrient company can be a money-maker. What exactly is a nutrient company? Think Miracle-Gro for pot.
In fact, Scotts, the company that makes Miracle-Gro, has a subsidiary called Hawthorne Gardening.
Hawthorne Gardening supplies medical marijuana businesses with hydroponic supplies and nutrients similar to Miracle-Gro so that they can grow healthy plants.
In order for cannabis companies to grow their customer base, they need to employ marketing services. There are a number of companies that work specifically on marketing campaigns, branding, and packaging for the cannabis industry.
One such company is called Kush Bottles, which does bottle packaging for companies.
Types of Cannabis Stock
Cannabis stocks are in an interesting place right now. They’re becoming more mainstream, but the laws have yet to catch up with the growth of the industry.
As a result, entrepreneurs are limited in how they can invest in cannabis stock. Right now, you’re not going to find a lot of companies on blue-chip exchanges like NASDAQ or the New York Stock Exchange.
Until cannabis companies grow to the size of Google or Apple, that’s not going to happen anytime soon. Plus, since cannabis is still a federally considered a Schedule 1 drug, regulators won’t approve the trading of these stocks on major exchanges.
Despite these issues, you’ll still be able to find some cannabis-based companies on the major exchanges.
Enter Penny Stocks
Penny stocks are smaller stocks that trade for $5 a share or less. They’re not stocks, but securities. You may find some penny stocks on the NASDAQ or NYSE.
Most cannabis stocks will be on the OTC (Over the Counter) Bulletin Board. Penny stocks or over-the-counter stocks are listed on these listing services because they’re small and they can’t meet the SEC’s requirements to be listed on the major exchanges.
That should tip you off that these will be low-cost, high-risk stocks. It’s like going to the racetrack to place bets.
Mutual funds are also jumping on the cannabis bandwagon.
These will be more legitimate means to invest in cannabis stock, and you can find a find that suits your aversion to risk.
Do Your Research
Once you know how what type of company you want to invest in, you’ll want to study them closely.
Look at sales figures from the last year. Where can you go to find the most accurate reports? Publicly traded companies and soon to be traded companies are required by the SEC to file reports.
These reports have the role to protect people from investing in poorly performing companies without knowing about it. This can be tricky since most cannabis stocks are penny stocks.
You can search for the parent company’s name and get information from those filings. See a sample prospectus here.
Companies that are not yet traded on the stock market but plan to have an IPO will have a prospectus. The preliminary prospectus will detail the sales strategy and key details of the business. The final prospectus will include the IPO stock price and the number of shares to be sold.
Publicly traded companies have two types of reports. One is called a 10-K, which is a company’s annual report for the entire fiscal year. Companies also file a 10-Q, which is a quarterly report.
You’ll have to learn how to read these reports. Once you do, you’ll be able to glean a lot of valuable information about the company before deciding to invest.
You’ll learn about the internal and external factors that impact revenue, and you’ll see a company’s cash flow. You’ll find about the company’s risks, the competitive environment, and how the business operates and makes management decisions.
Some organizations will have these reports readily available for investors on their website. If you can’t find it there, you can contact the company’s investor relations department or search on the SEC’s website.
To test out the search function, you can look up Kush Bottles and find their filings there.
Get Support from Other Investors
Success rarely happens in isolation. That means that you may be trading stocks on your own, but having a trading mentor or the support of a group can be invaluable for you.
You can check out a group like the National Institute of Cannabis Investors, which offers its members a lot of opportunities to learn about the industry an connect with other investors.
You can also look for local investor groups where you can meet and learn more about investing.
Ready to Invest in Cannabis Stock?
Cannabis stock is a hot topic for investors. Many see cannabis as a golden opportunity to make money easily.
There are many types of companies you can invest in, from producers to marketing firms.
Before you make the investment in cannabis stocks, you still need to do your due diligence and invest wisely. That means taking the time to look at a company’s financials to make sure they’re a viable business and will produce returns every quarter.
You’ll also need to stay on top of trends and changes in the industry, which you can do by checking out the latest news on our site.