The global marijuana market is projected to grow from $30 billion in 2021 to $55 billion in 2026. And with the legalization of marijuana for medicinal and recreational use in only some US states, beginner investors may wonder where to buy cannabis stock. Keep reading to know the best options.
Where to Invest in Cannabis Stocks
With the rise in the production and consumption of cannabis, many businesses offer marijuana-based goods and services to consumers. The companies operate differently, focusing on the medical or recreational use of cannabis.
So, if you’re looking for where to buy cannabis stocks, many options exist.
Direct Stock Investments on Major Exchanges
One of the easiest ways of investing in cannabis stocks is by direct stock purchases from major stock brokers. These cannabis-focused companies are listed on stock exchanges like the New York Stock Exchange (NYSE), the Toronto Stock Exchange (TSX), and NASDAQ.
In other words, investing in marijuana stocks is similar to buying shares of publicly traded companies in different industries. For instance, you’ll find popular cannabis stocks like Aurora Cannabis Inc. (TSX: ACB), SNDL Inc. (NASDAQ: SNDL), and OrganiGram Holdings Inc. (NASDAQ: OGI) on the renowned stock exchanges.
Investing in these stocks offers you various benefits.
When you invest in a marijuana company’s stock, you become a shareholder and receive a percentage of its profits as dividends. Usually, the companies pay dividends annually, and your gains can be in cash or additional cannabis stock options.
Access to Company Information
Another perk you’ll enjoy as a shareholder at a cannabis company is first-hand access to the company’s information, including their financial statements, management team, and other information you need. Using the information, you can assess the company’s internal structure, decision-making process, and other necessary information.
Stock Price Data
Finally, you can access the company’s stock price data to see its market performance and analyze its future potential. Subsequently, you can make informed investment decisions using the available data.
Typically, you’ll need to find an online broker to connect you with the preferred stock exchange and find the cannabis stocks you wish to invest in.
Diversifying with Cannabis Exchange Traded Funds (ETFs)
Another way to look when thinking of where to buy cannabis stock or invest in cannabis companies is toward cannabis ETFs. The alternative investment option allows you to pool different stocks together in one basket – like a mutual fund. However, you can buy and sell cannabis ETFs on the stock exchanges mentioned above.
One of the reasons investors opt for cannabis ETFs is because they offer less risk than individual stocks. However, the rewards are also lower because ETFs track a particular cannabis stock from all the combined options.
Other benefits of investing in cannabis ETFs include:
Cannabis ETFs let you combine different marijuana stocks and diversify your portfolio instead of sticking with an individual cannabis stock. For instance, AdvisorShares Pure Cannabis ETF and ETFMG Alternative Harvest ETF are two popular cannabis ETFs on the market.
You can combine these ETFs or more in one pot basket by purchasing marijuana ETFs.
Another reason investors choose cannabis ETFs when thinking of investing in marijuana stocks is because ETFs generally carry low risks. With individual cannabis stocks, there’s usually higher volatility, but ETFs are less risky.
So, new cannabis investors who want to gain market exposure may opt for marijuana ETFs for easy exposure to the cannabis world.
The more your investments, the higher your costs. These costs include portfolio management fees, administrative fees, distribution costs, and asset custody costs. Investing in cannabis ETFs will help cut down these costs because you don’t have to bother with the standard monthly statements, quarterly reports, annual tax reports, and other administrative burdens.
Over-The-Counter (OTC) Exchange Stocks
While trading on exchanges is a common practice, OTC stock trading happens outside a centralized exchange. This trading technique involves trading stocks through a broker-dealer (B-D) network, which is usually a broker firm that buys and sells stocks on behalf of its customers.
Usually, OTC trading is offered by cannabis companies with stocks not listed on standard exchanges like the NYSE. These companies typically don’t make it to the general stock market due to their inability to meet the listing requirements. These often include liquidity and financial requirements.
However, their transactions are legal and regulated by the Securities and Exchange Commission (SEC). In addition, trading stocks on the counter may be ideal for beginners who can hand over their trading activities to a dealer or broker who’s a specialist in OTC trading.
In other words, OTC grants investors access to stocks not listed on exchanges – which may sometimes be unknown gems. Nonetheless, investing in OTC stocks is risky because of different challenges. These include high volatility due to low liquidity and limited public information about the companies, which may result in fraud.
So, it’s crucial to research a company thoroughly to verify its OTC trading status and mitigate the risk of losing money.
Building a Robust Cannabis Portfolio
Knowing where to buy cannabis stocks isn’t enough. As an investor, you must build a profitable portfolio to make your investment journey worthwhile. Now, let’s take a look at the different ways to build a solid cannabis investment portfolio.
Understand Your Goals and Risk Tolerance
Every investor must have a goal. Understanding and breaking your investment goals into achievable bits will set you up for success. Essentially, write out your financial goals and divide them into long-term, medium-term, and long-term goals.
You should also understand your risk tolerance to determine the most suitable investment options.
Diversify Your Investment
After deciding the types of stock you want to invest in, allocate your capital to them. Though individual stocks are usually more profitable, diversifying your investment can help build a healthy investment portfolio. With a diversified portfolio, you can spread your capital across multiple stock options.
Like the general saying, don’t put your eggs in one basket. You can create a stock pot with high-risk and low-risk stocks for balance.
Research the Company
Researching the market isn’t enough. It’s imperative that you dig deep into the information of the company you want to invest in. These include going through their financial records, management team information, previous stock history, etc.
You should also review their legal status and other associated information from time to time.
Stay Updated With Market Trends
Finally, the cannabis market is constantly evolving, and so should you. After hitting the “Buy” button, ensure you stay up to date with the market trends by monitoring your portfolio. Make adjustments when necessary to rebalance and go again.
Choosing the Right Brokerage for Cannabis Investments
Now that you’ve equipped yourself with all the information you need for a successful cannabis investment journey, it’s time to determine where to buy cannabis stock. With many online brokerages around, choosing the perfect option can be challenging – especially for beginners.
Below, we highlight the major metrics to consider when choosing a brokerage for your cannabis stock investments.
The first thing to look out for when choosing where to buy cannabis stock is the brokerage’s reputation. Usually, the best brokers maintain a solid track record that potential customers can verify. So, you should check online reviews for what their existing users say about them.
Similarly, reputable exchanges have their insurance and security information public. Check whether the brokerage is licensed by the SEC. Also, verify if the exchange is a member of regulatory agencies like the Securities Investor Protection Corporation (SIPC) and the Financial Industry Regulatory Authority (FINRA).
Finally, understand the kind of insurance they provide in case they shut down operations.
The next thing to check is the fees. Brokerages with high fees will eat into your potential profits. So, you should determine how much you need to pay for the brokerage’s services. These include administrative fees, inactivity fees, and trading fees.
Overall, you should opt for brokerages that let you lose as little money as possible from your returns.
You also want to consider the brokerage’s user experience and overall convenience. For example, do they let you trade online using your mobile device? Do they offer a mobile app? Do they have physical offices you can visit for complaints?
Brokerages with these features will offer you a near-seamless experience.
Key Takeaways and Future Outlook
With the potential growth of the cannabis industry to reach nearly $149 billion in sales by 2031, it goes without saying that the cannabis industry is yet to reach its peak. As cannabis-focused companies and investors gear up for more friendly regulations from the government, there are various investment opportunities in the fast-emerging market.
We’ve discussed how to find where to buy cannabis stocks in the guide, making it easier to begin your cannabis investment journey. However, don’t forget to research before committing your capital to any investment, as the market is volatile. You may also consult experienced financial advisors to guide you as you go.
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Why You Can Trust The Marijuana Index
The information provided on Marijuana Index is solely for educational purposes. The selections presented here are the product of meticulous analysis by an experienced financial analyst. However, it’s crucial to remember that these choices may not universally fit every portfolio.
Before making any investment decisions, we strongly encourage you to conduct thorough research. This ensures that any potential investment aligns with your unique financial goals and risk tolerance.
As of the date this article was written, the author does not hold any positions in the stocks or ETFs mentioned.
We do not provide personalized financial advice, advisory services, or brokerage recommendations. Nor do we advocate for the purchase or sale of specific stocks or securities. Please be aware that performance information might have changed since publication, and past performance should not be seen as an indicator of future results.
Investing in cannabis stocks carries its own set of risks, reflective of the evolving legal landscapes and market volatility inherent in this industry. As an investor, it’s essential to be aware of these risks and consider them carefully in your decision-making process.
To understand more about our commitment, we encourage you to learn more about us. If you have more questions for our cannabis specialist editors, do not hesitate to contact us. You can also send us a tweet at @Marijuana_index. Stay updated with the latest cannabis news by subscribing to our Newsletter.