The growth of the cannabis industry over the last few years is impressive, to say the least. As the demand for both recreational and medical cannabis increases, so does the number of people investing in cannabis stocks. It seems that everybody wants a piece of the pie, and if market trends and predictions are true, this is only going to increase over time.
You can invest your money in cannabis growers, manufacturers of cannabis-derived products, cannabis supplies providers, cannabis distributors, and dispensaries. Of these sectors, cannabis growers have the biggest and highest market cap or capitalization. (Market cap is the total value of the shares of stocks of the company. Simply put, this indicates how much a company is worth.)
What are the trends that influence cannabis stocks and markets?
If you want to invest in cannabis, you have to know the trends that affect cannabis stocks and the market. These trends are usually influenced by market demand. Knowing what the consumers want will help you decide where your money is best invested.
Some of the major trends currently influencing cannabis stocks and market are:
- Increasing demand for CBD products
Many people want to try cannabis-derived products but are hesitant to do so simply because they are wary of the psychoactive side effects of cannabis. Many consumers want the benefits of cannabis, but don’t want to feel ‘high’. This is where CBD comes in.
There are two major cannabinoids in cannabis. You have THC, which is the main psychoactive cannabinoid and the most commonly known. Then you have CBD, which offers none of the non-psychoactive effects of THC but instead helps with inflammation and anxiety. Both have medicinal properties, of course, but CBD won’t get you ‘high’. To gain market value, many cannabis companies focus primarily on CBD products to attract consumers.
- Social consumption of cannabis
Canada’s legalization of recreational cannabis allows people to consume the plant in public areas, except for schools, playgrounds, health centers, and hospitals. (Of note, check your area’s cannabis laws for more information.) Because of this, experts are seeing an emergence of social consumption that was far less significant than before. It won’t be long before we see cafes and pubs catering to cannabis consumers, similar to the coffeeshops in Amsterdam.
- Cannabis-infused beverages.
Sit down, alcohol. You’ve had your time. Cannabis-infused beverages could very well take your place in the coming years if not at least offer stiff competition. If market predictions are true, the cannabis beverage industry will balloon into a billion-dollar industry by 2022. Cannabis beverages make up a small portion of the whole industry right now at only about 5%, but there is the potential for immense growth. Cannabis consumers and consumers, in general, are more health-conscious nowadays, and edibles (including cannabis-infused beverages) are a healthier way of consuming cannabinoids.
- The emergence of industry leaders
Those with a solid reputation will only grow and prosper in the coming years as investors will want to invest more money in stable companies.
- Ease and convenience of buying cannabis
In addition to the cannabis shop’s trustworthiness, the location of the store is also a key factor. So if you’re thinking of investing in a cannabis shop, the location should matter. Companies like Weedmaps and Leafly offer services with detailed maps of many cannabis retailers and their prices. With the growing popularity of CBD as a treatment grows the demand for more comprehensive information. CBD Central offers detailed information on all things CBD and is a great resource for learning more about the cannabinoid. These are all great resources when doing an initial search for cannabis retailers to invest in.
What are the advantages of investing in marijuana?
The greater the demand, the more companies will try to meet that demand. That is business 101. However, to meet the consumers’ increasing demand, companies will need to expand not only in their size but in their value and the quality of their product as well. To do this, they will need to raise cash. So if you’re thinking of investing in cannabis stocks, then you need to watch out for cannabis companies that have gone public or might be going public soon. You can buy some shares of their public cannabis stocks, and as their market value increases, so will your stocks. The potential for growth is astounding and if you play your cards right and you could end up doubling or even tripling your marijuana stocks.
What are the disadvantages of investing in cannabis?
Small cannabis shops are popping up like mushrooms to get a slice of the pie, and manufacturers are creating more innovative cannabis-derived products to keep their consumers’ interest. While this opportunity is good, it can also be a disadvantage. The overabundance of cannabis shops, producers and products will ultimately lead to a reduction in prices as they compete for customers in an oversaturated market. This means, of course, less profit, as it will inevitably affect cannabis stocks and decrease their value.
The cannabis market is also relatively new, and its projected growth is just that – predictions based on the current market trends. Consumers are pretty fickle. What they want now can change in the coming months, a shift that can easily influence cannabis stocks.
What are some risks to be aware of before investing in cannabis stocks?
Investing in cannabis can be pretty daunting, but if you think that its advantages outweigh its disadvantages, then do so. However, similar to investing in other non-cannabis stocks, you should always proceed with caution. You should always understand the risks, so you know what to look out for and how to avoid them.
The risk of losing your hard-earned money is always present when investing, especially in a new market, so if you don’t know what sector to invest in in the cannabis industry, it’s best to wait for the right opportunity. Take the example of Conestellation Brands Inc. The company, responsible for the very popular beer Coronas, invested in one of the largest cannabis producers in Canada, Canopy Growth. Because of a combination of factors, the company was unable to turn over any profit resulting in an estimated USD 54.9 million loss for Constellation.
There’s also valuation risk. If you don’t study the company very well, you might end up buying overpriced cannabis stocks only to realize that their value is far less than what you anticipated when your stocks mature or when you sell them. This risk is especially high in the cannabis industry where some cannabis stocks are not profitable yet. A good example is a cannabis biotech manufacturer selling its stocks, even though they haven’t earned any profit yet from the sales of their products.
Dilution risk is also real. For companies to gain more capital, they sometimes issue new shares. If their market cap did not change, it could reduce the value of your cannabis stocks. Again, this risk is high in the cannabis industry since Canadian cannabis companies are limited when it comes to generating additional capital. They can’t borrow from banks due to legal barriers, leaving them to issue new shares to generate more capital.
Investing in cannabis is hot right now with many investors reporting that their cannabis stocks are worth more today compared to the day they first invested their money. However, cannabis is a new industry, and trends can easily change and influence the whole market. While the tips above can help you understand the pros, cons, and risks of investing in cannabis, you need a thorough understanding of the cannabis market to reach an informed decision.
If you want to invest in cannabis, do so cautiously. You can also talk with a financial advisor or online broker to know more about investing in cannabis.