Investing in Cannabis: Which Stocks Are Right For You?

Cannabis can be a lucrative industry if you invest correctly.

how to invest in cannabis Source: Wikileaf

What’s the best way to invest in cannabis? Which companies are the most promising and what’s the best way to get yourself involved? Let’s take a deeper look and see if you’re ready to dip your toe into the cannabis market.

The cannabis industry has been on the rise for years. According to many experts, the industry is poised for another huge year in 2019 and could be worth $146.4 billion by 2025. Even parts of the industry that currently have more potential than actual real-world applications like CBD-infused drinks, have attracted the attention of industry giants like Coca-Cola and Pepsi and predicted to $600 million market by 2022.

Big tobacco has even invested in the cannabis market, with Marlboro’s parent company Altria pumping a massive 1.8 billion investment into Cronos Group, a Canadian company that focuses on rare cannabinoids.

Obviously, the future is looking bright and very, very profitable for those smart enough to invest now.

Which Type of Cannabis Stock Is Right For You?

When it comes to cannabis stocks, there are three major categories you’ll need to consider before investing. You’ll want to keep in mind the sometimes subtle and important differences between them.  

Growers

Canada Garden Grow HouseThe first are growers, probably the most simple and straightforward of the three. Unsurprisingly, growers are companies that cultivate the cannabis itself from seed to sale, then either sell directly to consumers or wholesale to other cannabis businesses for use in their products.

Due to factors like the continued federal illegality of cannabis in the United States, the ceiling on U.S. cannabis companies is much lower than companies in Canada, for example, where recreational cannabis is legal nationwide.

Canopy Growth Corp. is the biggest player in this space, boasting a massive market cap of more than $15 billion. They’re the leading supplier of medical cannabis in Canada and have positioned themselves as major players in Germany after they approved medical cannabis.

While Canopy is a great option if you’re looking to invest, most of the stocks in the grower category rely on the continued march towards full legalization. If that were to slow for any reason due to administration changes or some other unforeseen issue, investors might be stuck between a rock and a hard place on this one.  

If the current trend towards full legalization in the very near future does continue, however, it’s worth buying into a grower now. When legalization comes they’ll experience a historic boom.

Biotechs

Biotechs are the companies you hear about that are leading research into cannabinoids and working to find medical links between the cannabis industry and pharmaceuticals.

These companies most frequently work with synthetical derivatives of the organic compounds found in cannabis for treatment of all types of diseases and pain management.

The momentum of cannabis as medicine, particularly as a viable solution to opiates, is undeniable and there’s so much potential for investors in this space.

A major player in the cannabinoid industry is the British company GW Pharmaceuticals, a company with cannabinoid products already out on the market and a massive market cap of $5.2 billion.

That huge valuation comes from the potential of an FDA-approved CBD-based prescription drug called Epidiolex, which can be used to treat two rare, severe forms of epilepsy in children.

While Epidiolex may have gotten FDA approval, they’re the outliers. Generally, obtaining FDA approval is a massive stumbling block when it comes to cannabinoid research. It’s hard for companies to study and produce innovations in CBD spaces while funding is difficult to come by due to federal illegality.

Just like the previous entry on this list, a major factor in the success of cannabis biotech companies the progressive march towards full federal legalization. For investors, it’s a no-brainer to invest in an alternative to the destructive and addictive opiates that so many Americans use for pain management that could be handled by CDB-based products.

Ancillary Industries

Aerial image of tractor spraying soil and young crop in springtime in field

iStock / Jevtic

The last type of stock you can buy into isn’t a part of the cannabis industry itself, but all of the products that supplement and support the industry. For example, Wikileaf is a tech company that doesn’t touch any aspect of the plant whatsoever. Instead, they help consumers learn about cannabis, and find dispensaries and strains near them

Other ancillary businesses include all the things you need to actually grow cannabis. After all, cannabis is just another plant. It needs soils, fertilizers, pest control methods, watering systems and light sources to grow, especially for massive grows and farms all over the country.

A surprisingly aggressive big name in this space is Scotts Miracle-Gro. Yeah, that same company putting ads all over the airwaves about fixing up your lawn is also the company buying up small cannabis hydroponics companies.

Those aggressive acquisitions are likely to ensure their subsidiary company, Hawthorne Gardening Company, as the leaders in the hydroponics space and the preferred choice of cannabis retailers for supplies.

While Miracle-Gro might not be the first company that comes to mind when you think about cannabis stocks, it’s a relatively low-risk investment to buy into because of how high-profile and profitable the company already is while also having incredible upsides if full federal legalization were to come about.

Sometimes the best investments are the least obvious ones that might fly under the radar of high-profile investors.

Is Now A Good Time To Buy Into Cannabis Stock?

While the cannabis industry is looking like it’s about to blast off into the stratosphere financially, investors should keep in mind there are some risks associated with it.

While the industry as a whole is highly dependant on federal government scheduling changes and legalization as well as supply-and-demand issues that have plagued both Canada and states like Oregon, there’s no better time to invest in cannabis stock than the present.

The global demand for cannabis is changing and a wide majority of American approve for full recreational use.

As more and more countries with large populations, like Canada, go full recreationally legal and approve for medical cannabis, like Germany and the United Kingdom, the more money gets pumped into the global cannabis industry.

With more states on the way to legalization in 2019, the domestic market in the U.S. will undoubtedly grow as well.

The future is looking bright for the budding cannabis industry, their stock, and their investors.

 

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