Investing in the marijuana market may seem lucrative to many investors. The current scenario shows that people tend to be intrigued by the legalization of cannabis in Canada. This hype is reinforced by the progress of legalization by states in the US and by similar policies of other countries, including Australia.
Market analysts and experts also predict the potential for the groei of marijuana stocks. Current market research expects a compound annual growth rate (CAGR) of 18,1 percent, and the global legal marijuana market will reach approximately € 2027 billion ($ 62,5 billion) by 73,6. Surprisingly, unlike other stocks, the cannabis industry remained resilient, which collapsed during the ongoing pandemic as stocks rebounded after a brief initial decline.
Does this mean that investing in marijuana stocks is the best decision for investors and consumers? Not exactly. With so many stocks of marijuana available in the market, it is difficult to decide which stocks can make a profit. Buying and selling these stocks can also be different from investing in blue chips. A single inaccurate decision can lead to significant losses. That's why here are five such tips that will help you invest in marijuana stocks successfully.
Invest in the big players
Most cannabis companies fall under the small and micro cap category. The market capitalization of these companies is less than USD 250 million. It means they can provide tremendous growth, but are also vulnerable to volatility in terms of sales. Large players can absorb these fluctuations and can generate profits in the long term. While investing, look for the names listed on the NASDAQ and the New York Stock Exchange.
All companies listed here comply with accountability and transparency rules and the market value of the public share is a minimum of USD 40 million. Other decentralized markets do not have reliable information about the companies, nor are their listing requirements strict. As a beginner, it is advisable to invest in major cannabis companies for safe trading practices.
2. Diversify your cannabis portfolio
The cannabis industry is still in its infancy. Because cannabis stocks are subject to volatility in the future, a few companies may grow as market leaders and some companies may close. Therefore diversification of the shares is necessary. It means investing in companies dealing with various medical and recreational marijuana products. By dividing your money among companies that sell marijuana products marijuana buds producing, growing and selling, you can keep losses at bay. You are more likely to take advantage of other stocks if one is not performing well.
3. Be patient while investing
High fluctuations cause the shares to enter a so-called “bear market” (bearish). From the report June 2019, for example, shows that every popular stock suffered a loss. On the other hand, a NASDAQ report in May 2020 shows that several cannabis stocks have gone up despite the pandemic. It means they have now fallen into a bull market. Therefore, the volatility of marijuana stocks can appear profitable as stock prices can suddenly rise. Most importantly, you don't have to worry about the constant changes. Wait for a while so that you can reap the benefits of your investment.
4. Learn about the products
Cannabis companies are involved in the growth, development, research, production and distribution of various products. These products include edibles, oils, tinctures, vaporizers, raw flowers and other pharmaceutical drugs. CBD oil is the marijuana product that is most moving and its market share could reach $2024 million by 3782. Meanwhile, the edible products market will also increase by $2022 billion by 4,1.
Tinctures, vapes, capsules, lemon skunk and other products also have their share of the growth rate. Therefore, before you invest, learn about different products and choose what suits you best in terms of stock price, volatility and profitability.
5. Limit orders
Marijuana stocks have a wider spread. Small market caps create a significant gap between bid and offer prices. It increases the risk and volatility of the shares. Place a limit order while buying and selling cannabis stocks. This allows you to make transactions at a specific price. When you buy, your stock broker executes the open order or at the price you set. During the sales process, you can continue with the order at the set price or even try to go above it. With restrictive orders you can now protect the investment in this volatile market and prevent price shifts.
A due diligence report is required for any investment. For a cannabis company, you choose to invest, then you analyze its track record. View the business overview, competitor information and how it grows and expands to achieve profitability. Also follow the points above to make sure your hard-earned money is safe and generates enough profit. Remember that cannabis is a versatile and growing market with low stock prices. With the right knowledge and smart decisions, this may be the best time to invest in cannabis stocks.