There are currently more than 20,000 marijuana businesses in the United States, and more are likely to open up in the coming years.
With more and more states legalizing marijuana, both for medicinal and recreational use, lots of people are anxious to strike while the iron is hot and make a name for themselves within the industry.
In order to get off the ground, many of these businesses are looking for investors. Should you consider investing in the marijuana industry? And, if you do invest, how do you ensure you are successful?
Read on for some tips that will help you be successful when it comes to investing in marijuana.
Reasons to Consider Investing in Marijuana
Why would someone want to invest in marijuana stocks? There are actually some great benefits that can come with investing in marijuana, including the following:
Increases in Legalization
Currently, 10 states, plus Washington, D.C., have legalized marijuana for recreational use. And, 33 states have legalized marijuana for medicinal use.
In the coming years, more states throughout the nation are likely to get on board with legal marijuana.
This means that there will be an increased demand for marijuana businesses throughout the United States.
Affordable Stocks
Currently, marijuana stocks are extremely affordable. In fact, most of them are considered penny stocks, meaning they cost less than $5.
It’s true that penny stocks are more volatile than other stocks. But, if you’re willing to wait out market increases and drops, you could potentially earn a lot more after investing in these stocks.
There’s also very little risk involved in investing in penny stocks.
Major Market Growth
The marijuana industry is booming, both globally and in the United States.
The global market is expected to reach a valuation of $146.4 billion by the year 2025, and the U.S. market is expected to reach a valuation of $22 billion by the year 2022.
With numbers like that in mind, why wouldn’t you want to start investing in the marijuana market?
Top Eight Tips for Investing in Marijuana
As you can see, there are lots of reasons to invest in marijuana stocks. But, how do you ensure that you’re successful?
These guidelines will help you get started and be a successful marijuana investor.
1. Do Your Research
When it comes to investing in any industry, one of the worst mistakes you can make is failing to do your research.
Many people who want to invest in the cannabis industry rely too much on press releases and don’t dive deeper into specific businesses and how they’ve been doing long-term.
You can use press releases as a jumping off point. But, look at a company’s filings if you want to learn more about them and their quarterly financial positions.
Don’t be afraid to consult a cannabis investing organization like the National Institute for Cannabis Investors (NICI) for additional guidance, either.
2. Diversify
Diversifying your portfolio is important, period. In fact, it’s one of the most basic pieces of advice you’ll receive when you start investing.
But, it’s especially important with regards to the marijuana industry, which is still very new.
When you’re first getting started, it can be hard to separate high-performing stocks from the lower-performing ones.
In order to avoid experiencing losses that are too significant, be sure to invest in several different marijuana stocks. That way, even if one drops dramatically, your whole portfolio doesn’t suffer.
3. But Don’t Over-Diversify
At the same time, it’s also important not to diversify your portfolio too much.
If you add twenty marijuana companies to your portfolio and they all have negative expected returns, your portfolio isn’t going to do too well. It’ll just end up diluted.
Focus on a few stocks that, based on your thorough research, have the best chance of performing well on a long-term basis.
4. Start with a Small Percentage of Your Portfolio
When it comes to investing in the marijuana industry, avoid investing too much of your portfolio in marijuana stocks.
The marijuana industry is new, and marijuana stocks are risky.
Remember, don’t invest more money than you’re willing to lose.
Keep in mind, too, that some marijuana stocks are going to perform better than others.
You should be prepared to lose some of your investment, especially when you’re first getting started. If you don’t want to lose too much money, then avoid investing too much money upfront.
5. Focus on the Largest Companies
One of the best strategies you can implement when choosing which marijuana companies to invest in is to look for the largest companies in the sector.
This is especially true if you’re particularly risk-averse. The stocks for these companies are most likely going to be less volatile than smaller companies.
6. Don’t be Afraid to Go International
The marijuana market in the U.S. is growing. But, the global marijuana market is growing even faster.
Don’t be afraid to invest in international companies. Remember, countries like Canada, Israel, and Australia have all legalized marijuana. And, more countries are likely to follow suit in the future.
7. Don’t Panic
Marijuana stocks are volatile. There’s no getting around it. Investing in large companies can provide some insurance, but even those companies are not immune to market fluctuations.
When you’re investing in the stock market, it’s important to be patient and avoid acting on emotion when you see the valuation of a particular stock rise or fall. Wait it out and play the long game.
8. Allocate Your Stocks Appropriately
Many investment experts recommend that you weight your holdings differently.
With regards to marijuana stocks, it’s best to give larger marijuana stocks a higher allocation in your portfolio. And, give smaller, more speculative marijuana stocks a smaller allocation.
This way, the effects of market fluctuations will be less stressful.
Looking for More Investment Advice?
Now that you know how to go about investing in marijuana stocks, are you interested in other forms of investment? Not sure how to get started?
If you want to learn more about investing, head to our forum today.
Here, you can talk to other business owners and professionals who have been investing for a long time. You’ll be able to pick their brains and learn everything you need to know in order to be a successful investor.
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