This is how to invest in marijuana stocks if this something that you are considering to do in 2020.
While the stock market can easily wipe you opt, there is lot of opportunities to make life changing fortunes from this market. It is estimated that the value of the legal cannabis industry will hit $73 billion by 2027. However, greed is greatly discouraged in this trade, it is the one thing that can finish you before you can even get to say ADA. Not to scare you though. With this short guide that we have crafted for you should be able to hedge you risk and maximize your earning potential from lucrative pot stocks. That’s what the stock market is all about.
Fundamentals For Marijuana Stocks
Marijuana stocks are similar to other stocks that you might have traded in the past. However, the market is subject to steep volatility once in a while due to the fluidity of the laws in the cannabis industry. Note that this presents a lucrative trading opportunity for scalpers and day traders. However, if you are looking to harness the true potential of the industry a long-term approach will better your odds at profitability. In this case, the underlying principles aka fundamentals should guide your investment strategy.
1. Look At The Management Team
Novice investors usually fail to scrutinize the management team of cannabis stocks that they are considering to invest in. This may need up being a grave and costly mistake that results in significant losses. Executives with a track record of success are likely to steer the company into profitability. Consequently the long- term value of the pot stock will appreciate. On the other hand, poor management may be an indication of future massive losses in spite of current positive financials.
While the potential of the industry is significant, some companies will enjoy long- term profitability while others flop. The best predictor of this is the people at the helm of the company who are making key decisions. This includes the CEOs, finance managers, and other top executives.
2. Analyze The Business Strategy
The business strategy of any cannabis company is an indicator of the future financial prospects of that company. Take for example a Canadian based cannabis cultivator whose business strategy is restricted to the Great White North. Compare this with a cultivator whose strategy extend to the US, UK, and other emerging market. When looking for a long-term buy the latter will have more promising prospects for profitability.
3. Analyze The Financial Status
Apart from the business strategy you also need to consider the financials of the cannabis stock that you are looking to invest in. Most cannabis companies are yet to achieve profitability, given the turbulence that has been witnessed in the cannabis industry since its inception. However, this should not discourage you from investing in the industry. On the contrary consider this to be growing pains that are necessary for any nascent industry.
That said, there are a few signs that you should be on the lookout for when scrutinizing the financials of any cannabis company. Does the company have good cash flow, what are the sales like and how are they growing over time, what are the debts owed and what kinds of debt are they. Are the expenses sustainable? What are the cost structures? Will the company out- perform its competition? Does the company look like it will achieve profitability in the near future?
Consider using financial analysis resources to come up with objective answers to these questions. This should guide you decision on which marijuana stocks to invest in.
4. Analyze The Marijuana Stock Valuation
This is done using metrics that are based on the historical performance of the stock. For marijuana stocks, the enterprise value is a good indicator of the total value of company. This gives you a basis for comparing the value of different marijuana stocks.
Best Strategies For Investing In Cannabis Stocks
The above factors should form your basis for analyzing the fundamentals of marijuana stocks. With that in mind, here are three valuable strategies that can help you to decide which promising stocks to invest in.
1. Investing in pure marijuana stocks
These are companies that are entirely hinged on the cannabis market meaning that most of their revenues are derived from the cannabis market. These stocks potentially have high returns due to the growth prospects of the industry. On the flip side they are high risk stocks. Stocks that fall into this category include Canopy Growth and Aphria.
2. Investing in marijuana related stocks
These are companies that have interests in the marijuana industry but are not fully vested there. This approach lowers the investment risk but at the same time may also lower the profitability potential. Good examples of stocks that fall into this category include Constellation brands and Scotts Miracle- Gro.
3. Investing in marijuana ETFs
Marijuana ETFs are marijuana exchange-traded funds (ETFs) that allow you to invest in a couple of marijuana stocks. As you might have guessed, this helps to hedge your risk and increase your chances of profitability in the long run. Currently there are only two marijuana ETFs in the market: the Horizons Marijuana Life Sciences ETF and the ETFMG Alternative Harvest ETF.
As mentioned earlier, the prospects for the marijuana industry are very encouraging. To make any gains from this market you need to be equipped with knowledge and muster the skills of a shrewd trader. Ultimately, you need to develop your own unique investment style that suits your finances and lifestyle. You could be risk averse and therefore prefer to invest in safe stocks with the least volatility. On the other hand you may prefer to be aggressive and try out high risk stocks.
This wraps up our guide on how to invest in marijuana stocks. To learn more about cannabis businesses, enroll in Cannabis Training University.