Are You Making These Dangerous Investment Mistakes? Click Here to Read Our Special Report

Marijuana Stocks

Should you put your hard-earned money into marijuana stocks? We detail the investment opportunities, risks, and regulations in the cannabis space.

The marijuana industry is expected to triple in the next five years -- and many investors are looking to profit.

As states and entire countries decriminalize or legalize cannabis and/or its components, there are loads of opportunities for entrepreneurs and existing companies.

But as in any nascent industry, there are also loads of risks and bad actors. Whether you're a first-time investor or a seasoned veteran, it pays to understand all of the moving parts.

This guide will get you up to speed quickly.

How to Invest in Marijuana Stocks

Follow these seven steps if you're thinking about buying cannabis stocks. The following is a summary, but we encourage you to read the entire article linked below for all the details.

1. Understand the types of marijuana products.

  • There are two types of cannabis products: medical marijuana vs. recreational marijuana.
  • Cannabidiol (CBD) is a cannabinoid that is different than the psychoactive delta-9 tetrahydrocannabinol (THC).

2. Know the different types of marijuana stocks.

  • Marijuana growers like Canopy Growth Corporation (NYSE:CGC)
  • Cannabis-focused biotechs like GW Pharmaceuticals (NASDAQ:GWPH)
  • Providers of supporting products and services like Scotts Miracle-Gro (NYSE:SMG)

3. Understand the risks of investing in marijuana stocks.

  • Legal and political risks
  • Supply/demand imbalances
  • Risk in those that are over-the-counter stocks

4. Know what to look for in a marijuana stock.

  • Normal stock considerations, including:
    • Management team
    • Growth strategy
    • Competitive position
    • Financials (ideally either profitability or strong balance sheet)
  • Cannabis production costs
    • "All-in" cost of sales per gram
    • Cash cost per gram
  • For Canadian companies, the extent of international operations and distribution
  • Dilution risks via warrants and convertible securities

5. Evaluate the top marijuana stocks and exchange-traded funds (ETFs).

6. Invest carefully.

  • For many, avoiding individual investments in the marijuana space entirely is the right call.
  • For those who buy in, keeping your marijuana exposure to a small percentage of your overall portfolio limits your risk.
  • Pure plays are riskier than more diversified plays.

7. Monitor changing industry dynamics closely.

  • Laws, regulations, competitive forces, and the business strategies of the companies themselves will all change rapidly over time.

Read more: How to Invest in Marijuana Stocks (Note: includes a list of every major marijuana stock)

But, Really, Should I Buy Marijuana Stocks?

We just went step-by-step through how to invest in cannabis, but just because there's a trendy new sector with lots of press and potential growth doesn't mean you need to put your hard-earned money in it. After all, if you buy broad index funds, you're covered no matter what sector of the stock market does well.

Think through the pros and cons as you read on: Should You Invest in Marijuana Stocks?

Marijuana Legalization in the U.S.: The History and the Future

One of the biggest variables in cannabis investing is to what extent marijuana will be decriminalized or legalized within the United States, both on a state-by-state basis and on a federal basis.

The link below provides a quick spin through what we've seen so far, from decriminalization efforts starting in 1973 to legalization efforts beginning in earnest in 1996 to the political signs of where we seem to be heading.

Read on: Timeline for Marijuana Legalization in the United States: How the Dominoes Are Falling

More Information on Canadian Marijuana Stocks

There's been tremendous interest in Canadian cannabis stocks, because on October 17, 2018, recreational use of marijuana became legal in Canada (it had been legalized on a medical basis since 2001).

Beyond consumption by Canadians, the upside thesis involves operations or distribution to other countries that have legalized or may legalize marijuana to various extents. This includes Germany and particularly the large market on Canada's southern border.

Read on: Everything You Need to Know About Investing in Canadian Marijuana Stocks

Commonly Confused Cannabis Terms

One of the difficulties in understanding the marijuana industry is the jargon. Fortunately, it's not too complicated once you get a handle on a few main terms.

Marijuana vs. cannabis

Cannabis is the scientific name of the plant (the genus that houses three species). For an investor's purposes, marijuana is synonymous with cannabis, as are more informal nicknames like pot, weed, ganja, dope, grass, 420, sticky icky, etc.

CBD vs. THC

Cannabis is made up of nearly 500 chemical constituents, including many dozens of cannabinoids (substances that act on the body's cannabinoid receptors).

The two most commercially relevant of these cannabinoids are delta-9 tetrahydrocannabinol (THC) and cannabidiol (CBD). Only THC is psychoactive (i.e., makes you high).

Hemp

Hemp is a strain of a species of cannabis with relatively low levels of THC and relatively high levels of CBD. It has many industrial uses like providing fibers to make rope and clothing.

Recent articles

Doctor child patinet

GW Pharmaceuticals Drops After Hours Despite 72% Growth of Marijuana-Derived Epidiolex

The biotech's revenue growth is slowing.


Market down - GettyImages-638610308

Why Cronos Group Stock Plunged Today

The cannabis company is facing a host of challenges.


Cannabis vaporizer

What's Behind Cronos Group's Disappointing Q2 Results

There were a few bright spots for Cronos in Q2. But not enough of them.


featured-transcript-logo

Corbus Pharmaceuticals Holdings, Inc. (CRBP) Q2 2020 Earnings Call Transcript

CRBP earnings call for the period ending June 30, 2020.


rising stock arrow pharma

3 Pharmaceutical Stocks That Can Make You Rich

Some of the most promising stocks on the market right now are pharmaceuticals.


Cannabis Flower Bud Weed Pot Marijuana Grow Facility Greenhouse Legal Canada Getty

Investing in Aurora Cannabis? 6 Numbers You Need to Know

There's more to the most popular pot stock on the planet than just its headline sales and profit/loss figure.


Cannabis

4 Cannabis Stocks Poised to Profit From Legalization Votes

Marijuana legalization initiatives will be on the ballot in a number of states in November.


Cannabis Bud Trim Cut Process Weed Pot Marijuana Medical Recreational Getty

These 12 Pot Stocks Soared by Double Digits in July

A handful of prominent themes explains why these dozen cannabis stocks outperformed.


Mahomes

Canopy Growth Supplement Brand Signs Endorsement Deal With Super Bowl MVP Mahomes

The move is part of an aggressive push into the U.S. CBD market segment.


stock arrow downwards 2

What Should Investors Think of Aphria's Unexpected Quarterly Loss?

This once-profitable cannabis company reported a $99 million net loss. Is this a bad sign of things to come?


GettyImages-1016058212

Why GW Pharmaceuticals Stock Is Up Today

The FDA approved a new indication for the company’s top-selling product.


Marijuana products being tested

GW Pharmaceuticals' Epidiolex Wins New FDA Approvals

The company's star CBD drug can now be prescribed for a new condition, and its age range for a previous approval has been expanded.


Cannabis Flower Bud Weed Pot Marijuana Grow Facility Greenhouse Legal Canada Getty

3 Pot Stocks to Avoid Like the Plague in August

Not every cannabis stock can be a winner.


Coin Stack Cash Clock Stock Exchange Time Long-Term Invest Getty

3 Top Stocks That Will Make You Richer in August (and Beyond)

The stock market may have bounced well off of its lows, but there are still some serious bargains if you look hard enough.


Marijuana bud with Canadian flag in the background

Canada Marijuana Industry Output Rises by 11% in May, Hits Year-to-Date High

Weed was one of the very few economic categories to rise on a year-over-year basis.


Aurora Cannabis rebound

Can Aurora Cannabis Stock Rebound in 2020?

Has this Canadian pot company done enough to convince investors that it can come back from its disastrous 2019?


cannabis oil 1

Should Investors Buy GW Pharma Stock Right Now?

Wall Street analysts think this stock could double. Are they right?


Marijuana stock

Better Cannabis Stock: Canopy Growth or Aurora Cannabis?

Among these two popular players in the Canadian cannabis space, which is a better option for 2020?


Cannabis Flower Up Close Pot Weed Marijuana Grow Farm THC Getty

This Is the Top Marijuana Stock to Buy in August

No publicly traded cannabis stock is more nominally profitable than this company.


cannabis canada map

Forget Canopy Growth, Aphria Is a Better Value Stock

Its bottom line is stronger, and the stock doesn't come at a steep price.