Legal cannabis is North America’s fastest growing industry. In 2016, U.S. cannabis sales reached $6.7 billion and increased by 30% from 2015.
Looking towards the future – with more states in the U.S., Canada and other countries around the world moving towards legislation – the pace of growth, which is also quite impressive, is set to actually accelerate even more. It is expected that the recent decision by Canada to legalize recreational cannabis next summer will result in a $23 billion industry being created that could be larger than wine and beer.
Arcview, a Cannabis industry research company, predicts that U.S. cannabis sales will increase by over 200% by 2020 to $22 billion.
People have definitely noticed this amazing opportunity. Investors have been clamoring over marijuana stocks. In North America this year cannabis stocks have been some of the most heavily traded securities.
However, although I do think it is a great opportunity, there are also new challenges that come with investing in cannabis securities. There are over 300 cannabis stocks at the top to choose from. Separating winners from losers can be difficult.
From there, owning, buying and selling cannabis stocks is much different than when you invest in blue-chip stocks like Amazon, Alphabet, and Apple.
But don’t worry. Since 2013, I have invested in cannabis stocks for both myself and my clients. Over the past four years, I have been able to learn many valuable lessons regarding this young investment sector. Today I will be sharing seven useful tips to help you save both money and time to profitably invest in cannabis securities as soon as possible.
Essential Things You Need To Know About Cannabis Stocks
- Focus On The Sector’s Largest Companies
The cannabis sector is full of nano- and micro-caps. Those are companies that have market capitalizations that are less than $50 million and $250 million, respectively. These young companies do offer the potential for tremendous growth. However, they are also prone to extreme volatility. This volatility can drive unexpected fluctuations in both earnings growth and sales. It is much easier for large traders who have billions of dollars to move around to invest in a $50 million stock. BOth of these issues can be moderated when you focus on the cannabis sector’s largest companies. Keep an eye on prices with marijuana stock alerts.
- Go International
Some of the cannabis industry’s best investment opportunities are occurring outside of the U.S. For example, next summer Canada is scheduled to legalize recreational cannabis. Medical cannabis has been legalized in Israel and is moving towards legalizing recreational cannabis as well. In fall 2016 Australia voted to make medical marijuana legal. Local companies that are listed on the stock exchanges in those companies are scrambling around to cash in on this hot trend.
Separating the winners from the losers within the young cannabis industry is going to be quite difficult. Some of those companies will end up failing and filing for bankruptcy while others will develop into global leaders. That is why I recommend diversification. When you own a selection of marijuana stocks your portfolio can still survive if one of the stocks goes bust.
- Peripheral Versus Core Holdings
Weighting your holdings differently within a well-diversified portfolio is a very good idea. There should be a higher allocation of larger cannabis stocks, with smaller allocations for cannabis stocks that are more speculative and smaller.
- Focus On The Long Terms
Bouts of high volatility are common within the cannabis sector. In early 2014, for example, the entire sector rallied by over 200%. However, for the next 18 months, it fell victim to a nasty bear market with some stocks falling by over 50%. Don’t worry too much about this volatility or allow it to distract you from the overall big pictures. The best opportunities in cannabis stocks will occur over the long term.
- Don’t Sweat Too Much Over Valuation
There are very high expectations right now for cannabis stocks. This opportunity has investors really excited. This exuberance can be seen in the valuations of these companies. Some of the valuations on the more popular cannabis stocks look ridiculous when you compare them to the S&P 500. Some people claim they are unsustainable valuations. Although there is definitely some merit to the argument, don’t allow the criticism to prevent you from being able to see the overall opportunity of this sector.
- Use Limit Orders
Purchasing cannabis stocks is much different than purchasing blue-chip stocks. Cannabis stocks can have much wider spreads compared to blue-chip stocks due to their lower daily trading volumes and smaller market caps. When selling or buying cannabis stocks, always use limit orders. That will help your entry prices avoid experiencing price slippage.
Risks To Consider: There are high bouts of volatility associated with cannabis stocks. They can easily fall 50% at times for what appears to be no reason but then will recover to new highs for what also seems like no apparent reasons. You need to be prepared to accept this volatility in order to succeed as a cannabis sector investor.