What are the pros and cons of investing in marijuana?


marijuana

It’s 2017, and marijuana isn’t just legal in some places; it’s also a publicly traded business. Catering to the needs of cannabis enthusiasts is a multi-billion-dollar business, and an investable one, too. This means that right now, you can take your hard-earned money and purchase an infinitesimally small percentage of a company that buys, sells, or helps with the creation of weed.

But should you?

Thousands of investors and finance pros have asked this question about the burgeoning cannabis market. On one side, people are lining up to take advantage of potential financial opportunities in an exciting new space. Others are erring on the side of caution due to the legal and financial ramifications that could come in the near future.

If you, the budding investor, are on the fence about entering the marijuana market, fret not. We investigated the major pros and cons of investing in this exciting and terrifying new industry. After weighing both sides, you’ll be well on your way to making an educated, well-informed decision for your financial future.

The Pros: A growing, undervalued market with loads of potential.

Cannabis companies are new, and their stocks are even newer. If the industry continues to grow, more cannabis companies will go public and the existing ones will expand in size/value. Buying a weed stock at its current low-ish value lets you, the savvy investor, maximize potential gains and returns if you hold on to this stock for years. You could even end up making Amazon IPO levels of money. (Emphasis on could, of course.)

There are also companies in the “green” space that don’t solely make weed-based products. The Scotts Miracle-Gro Company ($SMG), for instance, makes most of their money with plant and lawn care products. The company’s investments in and acquisitions of cannabis companies aim to further diversify their revenue and product offerings. This will (hopefully) help them profit from the weed sector in the future. By investing companies like Scotts and other savvy stocks, you’re investing in companies with fingers in multiple pies.

The Cons: A risky space that could change at any moment.

There are hundreds of marijuana stocks, though few are traded on a major exchange. Most are traded on over-the-counter exchanges as penny stocks. These stocks face little to no regulation and could rapidly increase or decrease in value. Some could even vanish overnight, taking your investments with them. These investments are riskier than most other forms of investing, and we suggest that novice investors should stay far away from them.

Future laws and legislation could also put a damper on the entire weed industry. Attorney General Jeff Sessions is notoriously opposed to legalized medical and recreational marijuana. Sessions is currently looking at ways to negate state marijuana laws, something that could put weed companies, growers, and distributors out of business. Though Canada will soon allow recreational use of cannabis throughout their country, losing some or all U.S. states as customers would cause the sector to shrink, severely lowering share prices in the process.

How do you invest in marijuana?

If you’ve weighted the pros and cons and want to invest in marijuana, you just need a broker or brokerage to buy weed stocks. It’s worth noting that many cannabis companies are listed on the Toronto Stock Exchange, which means you’ll need a broker(age) that supports international exchanges. (Robinhood, our brokerage of choice, does not support the TSX.)

Once you’re all set up, you simply need to search for the weed stock of your choice and buy it. If you’re looking for a place to start, you could consider popular options like $WEED, $INSY, or the ETF $HMMJ. Just be sure to do your research before you buy anything. After all, you always want to know exactly what you’re investing in — and what you should avoid.


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