In the past decade, the budding herb industry has exploded in economic potential and product diversity. Coined as the “green rush,” cannabis commerce was valued at just under $14 billion in 2019. As legality efforts take root across the country and minds are opened to greener thinking, experts expect cannabis sales to reach $35 billion by 2025. The rapidly growing market is raising eyebrows across the world, and investors are rushing to add cannabis stocks to their portfolios.
Ready to cash in on a billion-dollar opportunity? Consider this complete pocket guide to investing in herb stocks.
Know the different types of marijuana stocks
Every herb stock falls under three overarching categories. The first is herb-focused biotechs, which are pharmaceutical companies that develop cannabinoid-based drugs. The second category consists of companies that sell ancillary products and services to flower farmers, like hydroponics or lighting systems.
Finally, there are the growers and retailers themselves that distribute herb products directly to customers. Although public companies make smart investments, you should also diversify your portfolio with stocks in private alternatives like MJ Arsenal. With the coating of cannabis stigmatization beginning to crack and a growing emphasis on personal wellness on the horizon, those rooting for nationwide legalization from the sidelines should make a conscious effort to back these private companies fighting on the frontlines. Not to mention, the growth of accessible technology and regulatory guidelines have further democratized private equity markets, making it easier for the sector to flourish.
Understand the risks
In addition to federal restrictions on herb in America, there are worldwide risk factors that require consideration. For example, supply and demand imbalances. In the early stages of industry growth, growers in Canada and elsewhere adopted considerable expansion initiatives to meet surging demand. Unfortunately, the ganja bubble burst and overstocked supply levels began to exceed falling demand. Additionally, herb stocks are designated as OTC stocks. Over-the-counter stocks are not required to submit consistent financial statements, meaning investors cannot make accurate risk assessments.
Research the company
Any experienced investor will tell you to start by researching the company of interest. Get to know their business goals and core principles, and make sure their values align with yours. You can also inspect a businesses’ SEC filings that provide transparency and information to investors. For further analysis, scroll through financial sites to get a sense of the overall market sentiment.
Decide between individual stocks and ETFs
Herb ETFs allow you to invest in multiple companies across the entire industry, while individual stocks focus on one company. Depending on your investment goals and habits, you may want to consider one over the other. For traders that take advantage of quick price shifts, individual stocks offer the best return. Investors that aren’t interested in keeping a constant eye on the market are better suited to ETFs. If you choose to pursue the ETF route, consider the difference between actively managed investments and index-corresponding ones. Index ETFs provide investment results in relation to the underlying market and usually have lower expense ratios. Alternately, actively managed ETFs react to developing herb news and trends. Their ability to adapt on a dime is both a positive and negative attribute, as some investors consider them flighty.
The herb market is growing like a weed, don’t miss your chance to cash in. By choosing a company that aligns with your personal and financial interests, you’ll join the green rush in no time.