The medical marijuana business is steadily on the rise and is expected to continue in the far future. While it is a relatively young sector, it is full of opportunities for investors. Cannabis is a highly regulated substance, and while some may look at it as a problem due to its federal status. It is more important to regard it more as an opportunity. Because of cannabis being federally illegal in the US, you can be sure to have less competition from the start, which is always a good thing in investment.
Science is lending a helping hand in legitimizing the cannabis industry through study after study showing positive results in the field of medical applications of the substance. Since it’s emergence, the cannabis market has proven to be a veritable playground for future millionaires if they play their cards right. The numbers are quite encouraging, as it is expected to be a $21 billion industry by 2021, and the North American Cannabis Index has recorded a growth of over 106%. Growth Network Holdings is an industry leader investing in cannabis and launching cannabis brands for over a decade.
However, just because cannabis is new and exciting does not mean that you should invest right away without doing due diligence. The cannabis market is an arena that is more complicated than most because it is new, and the highly regulated nature adds to the complexity. Some of the major challenges stem from regulations and their continuance to change over time, affecting supply and demand. Investing in the cannabis market, like all the other markets, is not without risks, and below we list 5 of the bare minimum considerations you need to take into account if you are interested in investing in cannabis.
Do your homework
Every investment carries risk, and cannabis is no exception. There are a lot of variables from the products, to the players, to the regulations. Cannabis is its own beast, and having a good understanding of it is essential if you want to increase your odds of making money with your investment.
Each state and even county has different regulations, different consumers, and different entities. Are you interested in medical marijuana or recreational marijuana? Medical cannabis is mostly legal in over 33 US states alone, while rec has a much smaller footprint but includes California, the largest cannabis market in the world.
Both medical and recreational cannabis products include the same product categories – vapes, concentrates, dried flowers, edibles, tinctures, and even topical creams and lotions. In states where both are legal, medical products may carry a higher potency. In most states, there are only medical products.
Understanding the products with the most volume, margin, and steady supply as well as which companies produce those products will give you a better understanding of where to put your money. Also, some states have more opportunities than others. While California is the largest cannabis market, regulation and taxes make it the most difficult market to turn a profit. Understanding variations between states and jurisdictions is another layer to add to your investment strategy.
Pay attention to regulation.
Keeping on top of regulation is essential in understanding where future opportunities (and challenges) lay. This means always keeping up on the leading industry news as any investor worth his salt will do.
There are numerous industry outlets that put out daily, weekly, monthly, quarterly, and yearly reports. Subscribing to these will give you a first-hand look at what is happening within the industry. You can also keep tabs on your choice of investment web pages, social media accounts, and digital presence in today’s digitally connected world. This is like taking a daily pulse of your investment, and by doing this, you can catch problems early on and sometimes even before they happen.
Stay alert on changes in regulation because this is the one area that will directly impact supply and demand, with a direct impact on profits and, in turn, to the investors. The marijuana market is still growing and evolving, meaning change is guaranteed.
Do not forget diversification.
Never put all your eggs in one basket as they say. This has never been more accurate than in investments. Diversifying can take many forms, but it’s important to hedge your risk exposure. Invest in multiple parts of the industry – growing, distribution, packaging, retail, and more. Invest in multiple companies, multiple product forms, and multiple localities.
If you’re looking for an easy way to diversify, try investing in mutual funds or ETF’s. Leave the investment management to the pros and enjoy the benefits of diversified investment. Buying low and selling high can be an effective strategy, especially with cannabis. This industry is fairly volatile, and taking advantage of the peaks and valleys can bring you profits.
Know the types of cannabis stocks
Just as there are varieties of cannabis products, there are also different stocks involving Marijuana that is being traded. There are currently three primary stocks of cannabis in existence. As an investor, you can easily choose between Cannabis growers and retailers, Marijuana biotechnology companies, and the support industry behind marijuana farming, which include hydroponics systems, fertilization techniques, and modern growing systems indoor.
Knowing these types of stocks puts you in a position as an investor to keep a closer eye on these three and make the difference between success and disaster. You can also use this knowledge to diversify your portfolio in between these three stock types.
Regular monitoring of supply and demand imbalances
Opportunity lays where there is unmet demand. Not only is legalization expanding quickly, regulations are creating barriers to entry. The moats created around an existing company can serve as huge market advantages. Knowing where demand will grow and who is able best to take advantage of that hole in the market will give you a good sense of where to invest.
To wrap it up
The list above is in no way a comprehensive and complete listing. There are numerous factors that determine success in investing, and it’s impossible to capture them all in one blog. The above suggestions are a good starting point. Remember that investing is inherently risky, and you should speak to a professional before investing in anything. Investing in the cannabis industry is like any other investment, which means tried, and true business acumens are applicable.
Please note, all investments involve risks, including the possible loss of capital.