How To Buy Shares In Marijuana Stocks

Here’s the thing, when multi-billionaire trader George Soros decides to support and invest in something, it’s almost a guarantee to be a great investment vehicle. Especially when he makes a few good points about the benefits and legalization of marijuana on the Wallstreet Journal. He’s invested over half a million dollars into the quickly rising markets, everyone wants a piece of the action but is this volatile market a safe place to invest?

The marijuana industry has gone viral over the internet, and The Washing Post shows its rising acceptance has come after many failures.

I’m sure, by now you’ve seen the projections for cannabis sales over the next five years. Many experts believe that the combined legal medicinal and recreational cannabis industry could hit $23 billion by the year 2020! Before you dive into anything headfirst, it’s always best to do your research.

How to Invest in the Marijuana Stock Green Rush

As far as buying marijuana stocks right now, most companies are too small to be publicly traded on a federally regulated exchange such as the New York Stock Exchange (NYSE). An exception is a company known as GW Pharmaceuticals; this British company is traded on the (NASDAQ:GWPH) [stock_quote symbol=”GWPH” show=”symbol”]. They have been making headlines with a fast-track strategy to bring an oil-based CBD formula to market in the U.S.

As we have been noticing some promising gains with cannabis brands achieving success across stateliness, most companies are still too small and haven’t attracted enough attention. Right now, most cannabis businesses are a passion play by individuals who are willing to put their reputations on the line and go against the grain. These entrepreneurs are activist and believe in the cause of this movement. However, their levels of determination do not guarantee a win or postulate their business acumen is enough to overcome the almost limitless obstacles that it takes to run a company, much less a marijuana business.

One of the highest obstacles faced by many “ganjapreneurs” is the federal tax code. Since cannabis businesses are still illegal according to federal law, these businesses cannot write off operating or marketing expenses that other businesses can. That’s a huge burden on revenue and net profits for a small growing company, and an even stronger reason to consider investing your money into something else if you intend on seeing good returns on your investment anytime soon.

Try investing in marijuana penny stocks

If you still want to learn how to invest in marijuana stocks, then you should look more into pink sheets. Pink sheets or penny stocks are securities of over-the-counter markets (OTC), which have to clear fewer hurdles with the SEC than traditional stocks to trade. Penny stocks are where most cannabis securities are traded; this means regulation is not as strict, but this also means that the due diligence falls even more on your shoulders. You will need to dig deep and pull through all the roots to find out enough information about the company before making a good investment decision.

Try investing in marijuana through Venture Capital

If you don’t have the proper time to do your research on each individual cannabis company before investing money into them, another option to consider would be to invest your money into a (VC) or Venture Capital Fund. Venture Capital Funds invest in companies in exchange for equity in the companies they invest in. Today VC’s are investing more into companies that operate ancillary businesses within the cannabis industry. VC usually have their own analyst that will do research before investing the fund’s money into any business, plus you have the added benefit of owning shares in marijuana companies.

Always protect your money when investing

As with investing in any financial market, there are strategies you should follow to protect your money, here are four quick tips to help with investing in marijuana stocks without losing your money.

  1. Invest with caution, beware of the many scams that are out there and approach each company with skepticism. Some have claims to double your money within a year and want $50,000 to $100,000 upfront. Just be logical, if it sounds too good to be true, chances are it probably is.
  2. Regulations could change, know that the industry is still developing and expect deviation in the market between pharmaceutical grade and recreational products. Keep your eye on the news, all it takes is for one act or bill to be passed for the market to take off and the same for the market to crash. Keep that in mind and know that the market is highly volatile – The greater the reward, the greater the risks.
  3. Consider investing in companies that have a wide range of market segments. For instance, there are many biotechnology companies and even agricultural technology companies that are traded OTC in the U.S., but if you look deeper, you’ll need to ask yourself if you are investing in the parent organization of a segment of the operation. How would that impact your risk tolerance and investment goals? If you consult with financial market experts as an extra layer of protection over your own investigation, you’ll have help deciphering company-sponsored press releases and content versus the real information that’s not so easy to find.
  4. Research the company executives and management staff. Where do they come from? Does their background align with the industry? What are their credentials? Reports say the one person thought they made a good investment with a company who turned out to not have the proper licensing who then was forced to shut down. Do the people leading the company have a strong enough history to last the prohibition? Will they operate within the existing state regulatory environment and the ever-changing landscape? Do they operate under strong governance and maintain robust internal control?

I know the news headlines are telling you every reason why this market is taking off and why you should start buying marijuana stocks today but be careful. What’s the rush? Usually, when everyone is telling you to “buy, buy, buy” that’s the best time to sell and vice versa. With the technology sector doubling every year, investment opportunities are becoming more readily accessible to the masses. Today we have crowdfunding, and no-fee smartphone trading apps such as Robinhood, but we still need to be leery of where we put our hard-earned money and be sure it’s an ethical recipient worthy of out consideration or worse proliferation.

The best takeaway is to be mindful of the oldest rules in the trading and investing books which are to diversify your portfolio and hedge where possible.

Posted by on April 20, 2015
Giovany Hernandez