Cannabis is a hot sector. Right now, how to buy cannabis stocks is a question that’s likely on many investors’ minds. Marijuana is still federally illegal in the US, and many top cannabis players are based in Canada, so you may be wondering: What’s the best way to invest in marijuana stocks?
Various kinds of cannabis stocks
The marijuana industry is an evolving one. Medical marijuana has shown increasing importance in a variety of countries, and as of 2018. Canada is on track to reap the benefits of its full-scale legalization of both medical and recreational marijuana. In the US, 33 states and Washington, D.C., have legalized medical marijuana. A total of 11 states and Washington, D.C., have legalized adult-use marijuana.
Before we get into the nitty-gritty of investment in cannabis stocks, let’s talk about the different kinds of marijuana companies that exist:
- Marijuana producers and growers: companies that grow cannabis and cannabis products.
- Marijuana-focused drug makers: cannabis biotech companies and pharmaceuticals.
- Service providers for marijuana companies: support for marijuana growers and cannabis retail companies.
- Cannabis ETFs.
Most big cannabis players are based in Canada and trade on the TSE (Toronto Stock Exchange). These players include Aurora Cannabis (ACB), Canopy Growth (WEED), Cronos Group (CRON), and Aphria (APHA). However, Aurora and Canopy are also on the NYSE.
The cannabis industry is an interesting one
Canada is on track to become the country that profits most from cannabis legalization. The US also has wide support from its citizens to legalize cannabis. However, the Trump administration’s cold stance toward legalization raises doubts about whether federal legalization is possible. Many investors are likely wondering how to buy stock in the marijuana industry given the legal confusion.
If you’re wondering what the best stocks to buy now are, it may be hard to put your finger on any one in particular. However, it’s safe to say the more prominent players have strong fundamentals. Despite weaker results this year, these companies can still expand and drive growth and profitability. For example, Constellation Brands (STZ) has Canopy Growth’s back as its largest shareholder. With its help, Canopy is launching a new set of products for edibles expansion. To learn more, read Canopy Growth Is Set to Launch New Products.
Canopy Growth’s debt level is also low compared to its peer Aurora Cannabis, whose rising debt is a concern. The mergers between cannabis companies and food and beverage companies show room for further growth, making them interesting prospects. New Frontier Data suggests that the Canadian cannabis business has a bright future.
How to buy legal weed stocks
Research is essential before investing in any stocks—especially marijuana stocks, given the volatility and legal complications in the sector. As per Greedy Rates, you can choose to invest via a financial advisor or through an online broker such as Questrade.
You can also choose to invest in weed stocks directly. As we said earlier, Canopy Growth is listed on the NYSE (CGC) as well as the TSE. Aurora Cannabis is listed on both the NYSE and the TSE.
You can also choose to invest in companies that have partnered with cannabis companies. For example, Constellation Brands is partnered with Canopy, and Molson Coors is partnered with HEXO (HEXO). Many other cannabis stocks also trade on over-the-counter US exchanges.
If you’re interested in ETFs, you may want to check out the Horizons Marijuana Life Sciences Index ETF, which tracks the North American marijuana industry. To learn more about cannabis ETFs, read An Investor’s Guide to Cannabis ETFs.
Before you choose to invest, you’ll also need to open a brokerage account to purchase publicly traded marijuana stocks.
What are the benefits and risks?
Marijuana is legal in a handful of US states. However, since it’s federally illegal, it wouldn’t be a surprise if federal intervention happened in states with cannabis companies. Thus, there’s risk even in states that have legalized weed, so there could be legal issues if you invest in marijuana stocks. The industry is also susceptible to regulation scandals and corruption scams. The most recent was CannTrust’s (CTST) violation of Canada’s cannabis regulations, which dragged on its stock as well as the entire sector.
Recently, news came out about Tilray and HEXO also being involved in investigations. To know more, read Cannabis Scandal Radar: Is Tilray Next? and HEXO: The Next Cannabis Player on the Scandal Radar?
A small mishap can affect investors’ returns. HEXO’s recent news and fourth-quarter performance have dragged its stock down 43% in October. In the month, Canopy is down 10.2%, Aurora is down 34.5%, and Aphria is down 19.6%.
Marijuana is an evolving sector. The stock market and risk go hand in hand. If you’re an investor who’s OK to take on the additional risk and wait for an evolving industry to bear fruit, you may want to choose marijuana stocks. However, any investment requires thorough research on the pros and cons.
For more cannabis-related news and updates, be sure to check out 420 Investor Daily.