In the United States, nine states have legalized the use of recreational marijuana and 30 states have made medical marijuana legal. In addition, just this summer Canada made cannabis use legal nationwide. These changes have led to a significant increase in legal cannabis use in North America. Experts estimate that the popularity of marijuana will continue to grow in the upcoming years. In fact, according to Arcview Market Research, the cannabis industry is expected to grow from a just over a $9 billion industry in 2017 to a more than $47 billion industry by 2027. This much growth would peak any investor’s interest.
Questions many investors are asking is how do stocks make money by investing in the cannabis industry and is now the right time to invest?
How to Invest in Marijuana Stock
Image via Flickr by Brett Levin Photography
While cannabis investing may be very lucrative, especially for long-term investing, it also can be tricky to know how to invest. It is important that you understand what types of companies you are investing in before buying stock. There are several types of companies involved in the marijuana industry.
These are the companies that actually grow and harvest the cannabis crops to distribute to consumers. Due to the legality issues noted above, it can be risky to invest in these types of companies. There are, however, some major players, such as Canopy Growth, Aphria, and Aurora Cannabis, that now are traded on Nasdaq.
Ancillary companies are businesses that do not have any direct role in the production of cannabis. Instead, these companies work as suppliers and are still major players in the marijuana industry. Kush Bottles, for example, manufactures packaging supplies, like baggies, to cannabis producers. Other types of ancillary companies include irrigation companies and software development companies. Other investments to consider are in companies like Constellation Brands and Scotts Miracle-Gro Company, who have taken steps to invest in cannabis-related companies.
Biotech companies, such as Cara Therapeutics and GW Pharmaceutical, develop, market, and sell medical marijuana. The Food and Drug Administration (FDA) recently approved the first cannabinoid, Epidiolex, a medication used to treat epilepsy. Investment in these biotech companies is likely to increase as the FDA approves more cannabis-based medicines.
Is Now the Right Time to Invest?
The trick to stock market investment success is to buy emerging stocks when the price is low and hold them until the price rises. Some investors have been leery of investing in cannabis stock because of the uncertainty coming out of Washington D.C. In January, Attorney General Jeff Sessions took steps to rescind the Cole Memo, which could reduce a state’s right to pass their own marijuana laws. President Trump, however, later hinted that he supports state’s rights to make their own marijuana laws.
For now, this uncertainty is enough to keep marijuana stock prices down. Considering that more than 61 percent of Americans now support legalizing marijuana, it is likely that more states will take steps to legalize its use, which will increase the demand along with the value of marijuana-related stocks. This makes now the ideal time to invest in marijuana stock. Just be sure to do your research and know what type of company you are investing in before buying any stock.
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