With the recent legalization of marijuana for recreational use, a new industry has been created. Cannabis companies are merging, acquiring, and investing at levels rarely seen in any industry.
Investments in the marijuana industry were over $13.85 billion in 2018. And the average deal was made for around $23 million. The industry is a great opportunity for beginner investors and veteran investors alike.
Before jumping into the deep end, however, it’s important to know what to look for when buying stocks. Keep reading to discover what look for when buying cannabis stocks today!
The first thing to understand about investing in marijuana is that it is still not legal federally. The federal government still has marijuana listed as a controlled substance and not legal for recreational use.
This has made it difficult for some companies to sell their shares on the NASDAQ or NYSE. A lot of companies are choosing to be listed on the Canadian exchanges while others are choosing the “over-the-counter U.S. exchanges.
These exchanges are not subjected to the same scrutiny from the SEC as those listed on the NASDAQ and NYSE. The Canadian exchanges are subject to pretty high scrutiny.
However, because they aren’t typically listed on the NASDAQ or NYSE, it’s even more important to do your research.
Research the Company
This is a no brainer to the veteran crowd and will feel like an easy concept to grasp for beginners. But, there are a few highlights to touch upon to ensure you buy the best cannabis stocks.
Check SEC filings and read all relevant and recent news concerning the company. Read over public records and reports and if they’re listed on Canadian exchanges check for filings with appropriate organizations there.
The more information you have about a company the better you will be able to make an educated choice in the best stocks to buy.
Know the Different Types of Stock
When it comes to researching and comparing you need to know how to properly compare the companies. There are a variety of different types of stocks, but the three main ones are growers, cannabis-focused biotechs, and providers of ancillary products and services.
Marijuana grower stocks belong to companies who are involved primarily in cultivating and growing marijuana. The biotechs are concerned with the medicinal strains, and the providers offer products and services in support of the growers.
Knowing the different types of cannabis stocks will help you to compare them appropriately.
Cannabis stocks are much like any other stock and require similar investing techniques. But, there are a few unique factors to the cannabis industry that you should be aware of.
When investing in marijuana growers it’s important to pay particular attention to “all in” cost of sales per gram and the cash cost per gram for producing the cannabis.
The “all in” cost of sales per gram includes the cost to produce the cannabis, the cash cost per gram excludes the cost of packaging and inventory adjustments. Those companies with lower costs will be in a better position if the supply exceeds demand.
Another factor is how many warrants and convertible securities have been issued by the company. Warrants allow investors to buy shares in the future while convertible securities can be converted to shares of common stock in the future.
A company with a high number of warrants and convertible securities could see their shares diluted in the future. This would cause the price to plummet. Potentially making the shares you bought worth less than when you bought them.
Being aware of these factors will help you to choose the best cannabis stocks for your portfolio both today and in the future.
Buying Cannabis Stocks
Much of buying cannabis stock is similar to buying any other stock. It’s always a good idea to research the company and read any and all available reports and records.
However, because cannabis is a fairly new industry and is still not legal federally, there are unique factors to consider. Knowing that most companies have a hard time trading on the NASDAQ or NYSE indicates they may not receive the same scrutiny from the SEC.
Always do your research and when in doubt hire a broker. Their expert advice will help you to build a cannabis investment portfolio you can be proud of.