How to Profit by Investing in Pot
Marijuana has become big business. According to some sources, the industry in the U.S. generates close to $20 billion per year and given the more progressive approach in Canada, that country’s market is almost as big.
Another thing to know about the reefer market is that the profits aren’t going up in smoke. This means that investors can make a lot of money from the magical leaf and here are some tips on how to profit by investing in pot.
Not Every Stock is Created Equally
One thing to know is that investing in marijuana companies is no different than investing in other types of companies. In fact, you need to do your homework before deciding which investment targets best fit with your strategy.
As such, you might want to focus on producers, distributors, retailers, or maybe even the companies that service the market such as a cannabis software company. After finishing your research, you might even find that the target isn’t a publicly traded company at all, instead, you might focus on a private company or even an ETF focusing on the industry.
Just remember that even though the market for marijuana is hot right now, this does not mean that ever stock is created equally. Do your research before investing or live to regret your decision.
Our Neighbors to the North
While Donald Trump might not like Canada, for marijuana companies the country represents one of the most progressive markets in the world. Sure, they haven’t gone as far as Portugal (yet) but Prime Minister Trudeau is considering the rules to open the market completely and the stock exchanges in Canada have been more welcoming than those in the U.S.
This is creating a competitive advantage for Canada when it comes to investing in marijuana companies. Not only is the public market more accommodating than that in the U.S. but banking rules in Canada as more lenient as well. In fact, some analysts believe that Canada could become a world leader in marijuana by the end of the decade.
While this is somewhat ironic given that cultivation is a challenge in Canada’s long winters but it points to how a more accommodating regulatory environment can help to spur growth.
What does this mean for investors? Simply put if you are looking to cash in on the marijuana boom, then you need to consider Canadian companies.
However, there is one thing you want to keep in mind – the laws in Canada are not the same as those in the U.S. While many of the rules are similar, Canada does have a slightly different legal tradition and as such those considering large investments in the country should take into considering the legal requirements.
Medicine Man
Unless you’ve been living under a rock, you’ll know that the FDA recently approved the first marijuana-based drug for clinical use. This is a big development as it opens the door for pharmaceutical companies to accelerate research in this area, including non-opioid painkillers and treatments for PTSD among others.
The drug in question is called Epidiolex, and the cannabidiol(CBD) is used for the treatment of epileptic seizures. One of the breakthroughs is that drug has been approved for children as young as two-years-old, something which was missed in the headlines but could be a key for dosing guidelines in further drugs.
Besides the approval of Epidiolex, most analysts expect good things for the company which developed the drug – NASDAQ-listed, GW Pharmaceuticals. In fact, the company’s pipeline does hold promise and besides Epidiolex, the company has also received approval for a drug for multiple sclerosis treatment in several markets outside the U.S.
However, it should be noted that investment in development stage drug companies is not without risk. As such, any investment in GW or similar companies should be approached with caution.
Let’s Get Dirty
If you are looking to cash in on marijuana but you don’t have the risk tolerance for the companies directly in the space, then the best proxy would be to focus on their suppliers. This includes companies which provide fertilizer and other supplies for growers, such as Scotts Miracle-Gro. It might seem like something out of left field but these companies provide vital components for hydroponic cultivation.
Will the Boom Go Bust?
As mentioned, there is no such thing as investing without risk and as such you will need to pick your targets carefully. While the federal government in the U.S. remains openly hostile to the legalization of marijuana the current administration has continued to take a wait and see approach. Next to full legalization, this is probably the best outcome.
Will the boom go bust? Probably not in the short term, but investors should be mindful of the risks including regulatory changes, access to capital via banking restrictions, and even potential impacts from a slowdown in the broader economy.