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

People agreeing on a deal

This Cannabis Stock Trend May Hold Clues to the Industry's Future

The days of wheeling and dealing in the legal marijuana sector could be over, at least for now.


Coins along with bag of money

Why Aurora Cannabis Will Post a Profit in 2020

Could the company finally be on the right track?


GettyImages-498884814

Which of These 2 Ultra-Growth Stocks Is Best?

The best defense during a market downturn is usually a good offense. Here are two high-growing cannabis companies that are likely to continue their momentum.


GettyImages-1085124222

2 Marijuana Stocks With the Most Cash in 2020

At a time when cash is king, which cannabis company is better suited to cover its losses without the expense of diluting shareholders?


GettyImages-530933946

3 Reasons to Buy Canopy Growth Instead of Aurora Cannabis

Here's why Canopy Growth is the better weed giant.


Cannabis Plant Marijuana Pot Weed Dried Flower Legal Canada US Getty

The 3 Marijuana Stocks You'll Want to Own for the Second Half of 2020

These pot stocks offer a budding opportunity in a high-growth, but still relatively nascent, industry.


A cannabis bud

Aurora Cannabis Co-Founder and ex-CEO Retires From Board of Directors

It's not clear what Terry Booth will do next.


GettyImages-1132646374

Where Will Aphria Be in 1 Year?

A year from now, investors who buy shares of this bargain cannabis company will likely be rewarded for their courage.


Acreage Holdings

Acreage Holdings Q1 Results Disappoint: Will the Amended Deal with Canopy Growth Help?

Growing concerns in the U.S. pot market forced Canopy Growth to amend the deal with Acreage as the latter reported disappointing Q1 earnings. Will the new arrangement help Acreage's stock?


Aurora Cannabis

Are Good Times Coming for Aurora Cannabis?

After an unanticipated third quarter, this pot company is making some hard decisions. Will the efforts pay off?


cannabis plant 2

2 Pot Stocks That Could Soar in 2020

These are two of the better buys in the industry right now.


prescription medication

Is GW Pharmaceuticals Stock a Buy?

It's already up 20% this year.


Businessman Holding Hands Up Stop Avoid Getty

3 Cannabis Stocks to Avoid Like the Plague for the Second Half of 2020

It's unlikely these pot stocks will be showing shareholders the green anytime soon.


Cannabis leaf $100 bills

2 Reasons to Like Canopy Growth's Revised Acreage Holdings Deal -- and 1 Reason to Dislike It

Overall, Canopy's new terms appear to be good news for the company's shareholders.


Stopwatch Time to Buy Stock Market Correction Getty

The 4 Best Stocks to Buy for the Second Half of 2020

These great companies have what it takes to make you richer.


Cannabis leaf on straw in water bottle

Why HEXO Stock Jumped Today

An analyst is more bullish about the Canadian marijuana stock.


GettyImages-1152247530

Where Will GW Pharmaceuticals Be in 1 Year?

Here's why this shares of this cannabinoid drug company will keep soaring within the next year.


Marijuana buds atop a collection of US currency

Canopy Growth and Acreage Holdings Cut the Price of Their Merger

The modified deal is valued at around one-fourth of the original arrangement.


Gloved hands holding 2 test tubes

Better Buy: GW Pharmaceuticals vs. Cara Therapeutics

Both of these biotechs could have big catalysts on the way.


GettyImages-1139649025

3 Top Stocks That Aren't on Wall Street's Radar

High levels of insider ownership indicate confidence for these stocks.