The stock market has been in the news a lot recently, and many people who haven’t invested before have started considering it. And for a while, it was at all-time highs.
Whether you are an experienced investor or new to the market game, choosing the right stocks is critical to your success. One area that is drawing the eyes of potential investors lately is marijuana stocks. But is this a good investment option for you?
As more and more countries start to legalize marijuana (for both medical and recreational use), cannabis companies have begun to go public. Over the years, it’s been a question of when marijuana stocks will truly take off. Could 2021 finally be the year? Some experts think it may be.
Before you decide to invest in marijuana stocks, you’ll want to do some research. Know the risks, the types of stock available to you, and what makes this investment unique so that you can better weigh the risk versus the benefit of this stock.
Below, we’ll cover why many choose to invest in marijuana (though your reason may be something different entirely) as well as what makes marijuana investments unique. We’ll also highlight six cannabis stocks for you to consider purchasing in 2021 (after consulting with your broker or advisor).
Why Invest in Marijuana Stocks?
Choosing to invest in certain stocks is a personal decision. Some people take a very hands-off approach, letting their advisors monitor their portfolio. Other investors like to be more hands-on and choose stocks that mean something to them or reflect their values.
One reason some people have decided to invest in weed companies is that they are passionate about cannabis. Perhaps they’ve used it for medical purposes or known someone who has used it, and now they want to support this industry in a unique way. Or they may feel strongly that cannabis should be legalized everywhere, and investing is a way for them to advocate for it.
Some people may also invest in cannabis because they see it as a chance to get into a market early before it really takes off and prices go up. Marijuana is becoming legal in more places, and the market is quickly expanding. Some experts predict the marijuana market will grow about 18 percent every year between 2020 and 2027. That growth could potentially pay off for investors in the long run, especially if the stock is purchased while it is still well-priced.
Another reason people may add a marijuana stock to their portfolio is simply to diversify their holdings. Advisors and stock market experts often agree that having a diverse portfolio is key to being successful in the stock market, and adding cannabis will undoubtedly make your portfolio unique.
Finally, marijuana stocks have started strong in 2021. Through early February, the index was 78 percent. As these stocks take off this year, investors may see investing in cannabis as an opportunity they don’t want to miss out on.
Should I Invest in Marijuana?
Before we cover the marijuana stocks you may want to buy in 2021, let’s decide if purchasing marijuana stocks is right for you. This particular section of the market is unique, and investing in marijuana is not the best option for everyone.
So, what makes marijuana stocks so unique? Let’s take a look.
- It’s a new industry. When choosing a stock to purchase, it’s important to look at its performance history. This helps investors and advisors decide if the stock is too much of a risk or if they will likely profit from purchasing it. But the marijuana industry is new and has only been public for a short time. This means investors don’t have as much history to look back on before making a decision and can lead people to make more emotional decisions (“I’m investing because I am passionate about cannabis”). Investing more emotionally is fine but only if you can afford to take the risk.
- It’s usually quite volatile. Though many cannabis stocks are off to a strong start this year, marijuana stocks are notorious for being volatile. Their prices can fluctuate wildly in relatively short amounts of time. This is fine if you plan to hold your investment for an extended period, but if you plan to cash out investments soon, you may end up with a loss on this particular type of stock.
- It comes with unique risks. Because marijuana is not legal in all places, marijuana stocks do come with a bit of extra risk compared to stocks in other sectors. Marijuana legality and regulations are constantly changing, which can either hurt or harm a business, depending on where it operates and the type of marijuana business it is.
- It’s a prime target for scammers. Because so many people are eager to get into the weed market before it really takes off, scam artists have jumped in too. The Securities and Exchange Commission (SEC) has issued alerts on specific stocks warning potential investors of fraud and scams. Be sure to review their list before investing in a cannabis stock.
- It’s a speculative bet. Though marijuana markets have started the year off on a good note, that doesn’t mean they’ll stay that way. Cannabis stocks are difficult to predict the performance of, making them more of a risk than other stocks. Investors should be sure only to invest what they can afford to lose in this area.
As with any stock, it is best to do your research and talk with your advisor or advisors before investing. Though this type of stock might not be a good option for someone looking for a short-term investment, cannabis stocks may be something to consider buying as part of a diversified portfolio and a long-term investment.
Types of Marijuana Stocks
Marijuana itself falls into two categories:
- Medical marijuana.
- Recreational marijuana.
Different companies may offer different types of cannabis products that fall under one category or make products that fall under both umbrellas. It’s important to know which category your potential investment falls under if you feel strongly about medical marijuana use versus recreational.
But that’s not the only thing to consider when choosing marijuana stock. There are three main types of cannabis companies you can choose to invest in. They are:
- Marijuana growers who actually grow and produce cannabis flowers and other marijuana products like edibles and vaping equipment and supplies (among other things).
- Biotech companies that use cannabis to create things like medication and discover new ways to use marijuana.
- Providers of supporting products. For example, a company that manufactures the dirt and fertilizer a marijuana grower uses to grow their product.
Knowing the different types of companies you can invest in can ensure your investments match your values.
If you aren’t quite ready to fully invest in marijuana but still want to get into the market, investing in a providing company would be the better option. If you are passionate about medical marijuana and want to support the continued research and use of it, a biotech company would be an excellent choice.
Six Marijuana Stocks to Consider in 2021
If investing in marijuana is sounding appealing to you, you have many options. Below are six marijuana stocks you might want to consider purchasing in 2021. But remember that the stock market changes. It’s best to consult your advisors before making any investment.
- Aurora Cannabis (ACB). This Canadian medical marijuana company has been showing pretty good numbers as of late. Its consumer cannabis division, which produces products like vape pens, cannabis concentrates, and even edibles, has grown 25 percent last quarter.
- Canopy Growth Corp (CGC). Worth more than $12 billion, Canopy Growth operates in many countries, including Canada, Germany, the U.K., and even the U.S. Not only does it produce and sell marijuana, but it also sells cannabis products like oils, CBD products, and more under other companies. Because it’s already established in the U.S., CGC could potentially see significant growth should our southern neighbours legalize marijuana across the country.
- Aphria (APHA). Aphria earns its spot on this list because it is one of the few Canadian marijuana stocks that has been profitable in the last year. It has recently launched an international medical marijuana division, which has helped bolster stock in this well-run company.
- Scotts Miracle-Gro (SMG). This particular investment would fall under the “providing supporting products” division of cannabis companies, making it a good option for people who don’t want to invest in cannabis directly. SMG has seen growth, thanks in part to the COVID-19 pandemic, which saw people staying at home and getting their gardening done. In 2018, SMG acquired Sunlight Supply, which provides hydroponics, something marijuana growers purchase to grow their product.
- Cronos Group (CRON). Boasting the highest reported revenue growth of any Canadian weed stock last year, it’s no surprise that these stocks won’t come cheap. Canada’s cannabis market and Israel’s medical marijuana market have helped to drive Cronos Group’s performance.
- Tilray (TLRY). Tilray is the largest cannabis company in the world by revenue and operates in 16 countries around the globe. Focusing on medical marijuana, Tilray was recently approved in New Zealand to begin selling medical marijuana, spreading its reach. It also has an upcoming merger with Aphria, making this stock a good bet in the marijuana market.
How to Invest in Marijuana
If getting into the marijuana stock market is something you want to explore further or actively jump into, you’ll need a broker to help you get started. They will discuss your options and the risks with you, then help you choose the right stock for you.
They will likely talk with you about what type of investment you’d like to make. Do you want to invest in individual stocks, as discussed here, or would you prefer to invest in an EFT, which allows you to spread your investment across different companies in the marijuana industry?
Both options offer their own risks and rewards. Your broker can analyze them in more detail and also help ensure your choice matches any values you want to reflect in your investments.
Having a broker on your side can help you understand the risks of investing in the marijuana market, and they should have suggestions on how you can invest while minimizing that risk. Working with a professional to help you get into the cannabis market is crucial. Plus, they can protect you from becoming a scamming victim.
Final Thoughts on Cannabis Stocks
In Canada, interest in cannabis stocks started to boom after its legalization in 2018. And, as cannabis legalization grows around the world, more and more people are looking at marijuana stocks as a potential investment opportunity.
But investing in marijuana is not for everyone. Though these stocks have been off to a strong start in 2021, the marijuana market is known for being volatile. It can experience swings quickly and frequently, making it a poor short-term investment.
There are different types of marijuana companies out there. Some make and sell recreational marijuana products, some focus on producing drugs using medical marijuana, and others simply produce the supplies that marijuana companies use to make and ship their products. Finding the type of company that matches your values can make investing in marijuana easier and a more personal experience.
Though we’ve listed multiple stocks we think are worth taking a look at this year, keep in mind that their performance can change daily. You’ll want to work with a broker or advisor to help you analyze each stock before purchasing it and determining if it is a good fit for you.
Though stock might not be the right investment option for everyone, it can be beneficial in the long-run for those who to get into this growing market early as part of a diversified portfolio.