Investing Funds in Cannabis Stocks – Bonza Blog
Investing Funds in Cannabis Stocks:
Driven by the increasing awareness of the therapeutic value of cannabis, more people are taking the risk to explore the business side. With its growth and development, some changes in the industry have become advantageous to those with an entrepreneurial mindset.
There is potential in its production, storage, and distribution. Opportunities exist in education, consultancy, and training. As such, the idea of a cannabis-related enterprise brings excitement to business people in several sectors.
The legitimate and standardized cannabis space is getting wider. Although not all states in America have lawfully accepted the development and use of the plant, continuous initiatives are being carried out for its decriminalization.
Because of all these phenomena happening, some have turned towards investing in cannabis stocks. Not only does the plant bring therapeutic benefits, but also monetary yields.
Considerations in Investing
As with any investment, some aspects need to be considered when embarking on cannabis stocks. There is no perfect investment vehicle, but with due diligence, one can enjoy the benefits of stock returns.
Before making that decision to put money in individual stocks, mutual funds and exchange-traded funds, it is best to gauge the risks involved.
1. Stocks are volatile.
Volatility happens as a result of many factors. One of which is the classic bandwagon effect. With the decisions on legalization and developments in science, more and more people gain confidence over the plant’s ability and usefulness. People who share the same conviction tend to flock together and support one another. This singularity, in turn, heightens the enthusiasm of non-believers and they get influenced in a short period of time.
Another cause of volatility is due to what happens in related markets. In one way or another, movements in other investment markets affect the other. People have other alternatives, and they have the full decision to withdraw and settle their funds in treasury bonds, properties, or commodities.
2. Policies governing cannabis may change over time.
Historically and culturally, cannabis plants have been on a journey filled with highs and lows regarding its acceptance. It is not a product that is lawfully recognized all over the world. Some countries tolerate its consumption, but not the trade. Some governments allow personal home cultivation while others do not.
These realities may change depending on government leaders and policymakers. Policies in bigger markets such as the United States and Canada may affect the stock markets in other relevant countries. It is one of the significant risks involving cannabis investment.
3. There are high and low speculations.
There is no steady gain nor loss in investing. It could be soaring in some months but discouraging in others. Furthermore, it is also subject to speculations. Cannabis stock investing is nothing different from the traditional stock exchange.
4. Dilution of stocks is flourishing in companies.
Some companies practice what is considered as buy-deal transactions and stock offerings among their employees. This is largely due to the fact that not all have access to financial credits or grants from banks and financing agencies. These companies need funds to keep the cash flow going, and one way to augment the capital is through buy-deal transactions and stock offerings.
This stock issuance poses a risk because there are inside and outside shareholders who have a stake in the value of the stock. Once dilution takes place, the shares get thinner.
5. Companies involved in cannabis are part of an emerging industry.
As an emerging industry, many things can be explored about cannabis plants. There is a revolution occurring, and it comes with the gradual legalization happening in America, Canada, and in other parts of the world. Dispensaries are growing, and different related jobs are surfacing. While some view the future as bright and promising, others are doubtful with the uncertainties.
In capitalizing funds in the Cannabis stock exchanges, there are choices of investment vehicles. Each caters to a specific financial purpose and investor characteristics. An investor may stick to just one investment vehicle or may attempt a mix of several.
1. Shares of Stocks
Investors can buy individual cannabis stocks through licensed brokers. This is ideal for people who want to go deeper and evaluate a stock further. One has to be diligent in researching as it is risky buying individual shares without sufficient knowledge.
2. Cannabis Mutual Funds
Lacking in knowledge and time to select the right stocks, investors may opt for mutual funds instead. It is a collection of funds from different people and monitored by a bonafide fund manager who allocates it strategically.
For people who prefer a safer and long-term investment focusing on capital growth, cannabis mutual fund is ideal.
3. Cannabis Exchange-traded Funds
In some ways, it is similar to mutual funds. With exchange-traded funds, investors can order and sell shares. The fees associated with investing are lower compared to that of the regular mutual fund because there is no fund manager.
Security Exchanges that List Cannabis Stocks
Globally, there are security exchanges that have listed companies involved in the cannabis industry.
1. Toronto Stock Exchange
The Toronto Stock Exchange is considered to be the largest securities exchange in North America. The companies listed include Canadian licensed producers, clinics, cultivation, hemp products, biotechnology, financing, pharmaceuticals, and research & development companies.
2. Australian Securities Exchange
Founded in 1987, the Australian Securities Exchange is one of the world’s most active exchange groups. In its lineup are businesses involved in hydroponics, beauty pharmaceuticals, hemp seed products, animal pharmaceuticals, manufacturing, phytotechnology, and clinical research.
3. Canadian Securities Exchange
Another choice for investors is the Canadian Securities Exchange. It has a roster of encompassing licensed producers, real estate, hemp products, biotechnology, agricultural technology, ancillary products, and Marijuana products.
4. Frankfurt Stock Exchange
An international trading center, the Frankfurt Stock Exchange also offers cannabis stocks. These comprise licensed producers, agricultural technology, industrial hemp, biotechnology, and cultivation.
5. London Stock Exchange
By market capitalization, the London Stock Exchange is regarded as the third largest in the world. There are two listed cannabis stocks in the securities. One is the Associated British Foods which focuses on cultivation, and the other one is the GW Pharmaceuticals, a biotechnology company.
6. Tel Aviv Stock Exchange
The Tel Aviv Stock Exchange is catching up as more cannabis-related companies are becoming interested in going public. Some of the companies include Therapix Biosciences Ltd, Medivie Therapeutic Ltd, and Together Pharma.
7. Japan Exchange Group
There is one cannabis-related company listed in the Japan Exchange Group. It is the Iwasaki Electric Co., an electronics company. It has a subsidiary called the Eye Hortilux that produces grow lights to cannabis cultivators.
8. New York Stock Exchange
The world’s largest stock exchange also lists cannabis stocks. These are licensed producers, biotechnology, real estates, ancillary products, and consultancy companies. Expect more companies enlisting in the NYSE because of the status and credibility it carries.
9. NASDAQ Exchange (National Association of Securities Dealers Automated Quotations)
The NASDAQ also lists licensed producers, agricultural technology, ancillary products, cultivation, consultancy, biotechnology, testing, media, hemp products, software & technology, finance & investing, and real estate.
The cannabis stock markets can be volatile and move up and down. While there is a potential to earn money, it also involves risks. As such, it is best to follow specific guidelines to minimize potential losses. Being alert to relevant information also helps form an informed decision.
1. Only invest in what is federally legal.
Some states and countries have lenient policies concerning the use of cannabis. When investing, it is best to trust a stock that is federally legal. Exercising due diligence on the lawfully appropriate stocks would be great.
Cannabis-related companies that are centralized on ancillary products may be safer to invest in than the ones directly doing agriculture. When state laws change, there is a higher chance that the enterprises dealing with agriculture may be affected. Complementary products such as smoking apparatus, novelty goods, storage items and even technology may not be as affected. These businesses can be redirected as opposed companies that deal directly with the plant production.
2. Consult with an adviser.
Cannabis companies form part of an emerging industry where it is highly speculative and with no definite path. Already, the nature of the cannabis industry is complicated. Hence, sufficient exposure is needed to learn the ropes of investing in stocks. And, it also takes time to build fundamental and technical skills.
Having advisers can help fill the gap by providing insight on market research, valuations, opportunities, and legal information.
3. Read past performance reports.
Before investing in stocks or mutual funds, research on important matters such as past performance reports. Although positive reports do not necessarily secure a profitable future performance, it is still worth the time to read up on how a company has executed its business in the past.
Find out who comprises the management team and the kind of leadership they exercise. Research on the organizational hurdles they have managed to deal with in the past.
4. Invest in the most prominent companies.
Apart from being less fragile and volatile, investing in established companies that are not only big but also diversified is a sound choice. Look for businesses that are not involved with cultivation but provides related products and services. Examples of these are companies that sell pesticides, garden care, hydroponics, lighting, and other garden needs. Even real estate companies that offer greenhouses, grow rooms, and extraction labs may be rewarding.
5. Diversify portfolio.
The old adage of not putting all eggs in one basket remains true even in cannabis stock investing. There is an upside to having a variety in one’s collection of stocks. Should one not do so well, others might perform better. Spreading funds in different stocks in different fields may help offset the losses of one with the gain of another.
The cannabis stock market might frighten first-time investors. In this case, there are various business avenues where funds can also be capitalized and optimized. There is no guarantee, though, that these business opportunities do not present risks.
People who are interested in cultivating cannabis and providing a top-rated class of crops to the community, turning to agriculture business is a nice alternative. Due to the gradual positive acceptance of the medicinal value of cannabis, people lean towards agriculture as this is where the supply comes from. And, as more states and countries loosen the regulation, it gives farmers the confidence to continue cultivating.
In investing funds in agriculture, one is able to uplift the lives of farmers and help create jobs in the community.
2. Complementary Products and Services
Many businesses supplement cannabis production and consumption. Determining a niche and offering a unique solution to consumers may help meet consumer’s needs. Aside from putting funds in cannabis stocks, businesses that sell vapes, edibles, recipe books, smoking equipment, novelty goods, topical creams, and storage items may be profitable, too.
3. Consulting Services
Enterprises that move around niche consultancy on cannabis have also materialized. Those with business knowledge, legal experience, marketing background, medical expertise has somehow created a livelihood centered on the once controversial plant. As the Cannabis industry expands, the need for consultation and advice will be essential.
4. Technology and Devices
Technology plays a significant role in the industry from the time of production up to distribution. The ones involved in transportation, supply, warehousing, and database management may be useful instruments for business. Technology brings convenience and expediency both to the producers and consumers.
Due Diligence in Cannabis Stocks
Investing funds in the cannabis industry can go a long way. Aside from capital formation, investments also help further create jobs, generate taxes, encourage improvements, and strengthen related businesses. There is no straightforward formula to success in cannabis stock investing. Hence, the best way to go about it is to exercise due diligence and do thorough research before investing.