How to Invest in Marijuana Stocks

Despite the connotation attached to the word “marijuana,” stocks in marijuana companies are becoming more and more readily available for potential investors. In fact, you can even invest in marijuana stock through a normal brokerage. However, just like any other equity investment, these stocks can be risky, even in a growth-heavy market like this one. If you want some guidance regarding the marijuana stock market, considering enlisting the help of a financial advisor in your area.

How to Invest in Marijuana Stocks Through a Brokerage

You’ll need a brokerage account to purchase publicly traded marijuana stocks. After you’ve established how much you can afford to spend (and potentially lose), you’ll be ready to register and fund your account. In addition, whether it’s exchange-traded funds (ETFs) or stocks, you’ll have a range of investment options to choose from. You’ll also have the choice of investing in fractional shares. If you’re looking to buy less than one full share, services such as Stockpile and Motif Investing provide that option.

Once you’re ready to purchase your shares, you’ll have the choice between a market or a limit order. A market order allows you to purchase the stock at whatever its current price is. A limit order, however, lets you specify the maximum or minimum price at which you’re willing to buy or sell. Furthermore, along with the order type you select, your brokerage should also complement your investment goals.

Overview of the Marijuana Stock Market

The marijuana industry is rapidly growing, as more and more states legalize the drug on both a medicinal and recreational level. Just like any other burgeoning industry, the marijuana market is attracting tons of investors.

If you’re looking to buy equity in a marijuana-centric company, make sure you understand the market. Both marijuana products and marijuana stocks fall into different categories. In addition, though the product is now legal in many states, cannabis is still federally illegal. Therefore, this poses considerable legal risk for investors.

However, you’ll have a range of companies to choose from when purchasing marijuana stock. In fact, some of the most popular Nasdaq-listed U.S. and Canadian stocks include Terra Tech Corp (TRTC), Aurora Cannabis Inc. (ACB),  Cara Therapeutics (CARA) and The Scotts Miracle-Gro Company (SMG).

Most companies in the market fall under one of three categories: marijuana growers and producers, cannabis-focused drug makers and ancillary and products and services providers. Here’s a breakdown of each area of the market:

Types of Marijuana Products

Marijuana generally falls into two different categories: medical and recreational. While medical cannabis is legal in 33 states, Washington, D.C., Guam, Puerto Rico and the U.S. Virgin Islands, recreational use is only legally permitted in 11 states and D.C.

In addition, other types of cannabis products fall under the umbrella of the marijuana market. Some of the most common medical marijuana products include cannabidiol (CBD) or tetrahydrocannabinol (THC). Both naturally occurring compounds are typically used to treat illnesses such as chemotherapy-induced anorexia, nausea or vomiting. Recreational marijuana, on the other hand, is usually ingested either through smoking the cannabis plant or through consuming cannabis edibles.

Risks of Investing in Marijuana

Because marijuana is still federally illegal in the U.S., the market poses notable risk to those looking to become shareholders. This risk applies not only to those in states that haven’t legalized the sale of marijuana, but also to those in states that have. This means that businesses currently growing and supplying cannabis-related products are subject to possible federal intervention.

Investors should also acknowledge the risks that come with purchasing over-the-counter (OTC) marijuana stocks. U.S. companies, under stock exchanges such as the New York Stock Exchange and Nasdaq, have to fulfill certain requirements in order maintain membership. This typically translates to regular financial filings and minimum shareholder size requirements. Companies offering OTC marijuana stocks, on the other hand, don’t have to meet such requirements. Therefore, you should carefully assess factors such as a company’s market cap value and total assets before buying stock.

The industry also faces investment fraud and schemes facilitated by scammers. In fact, the SEC has issued warnings to investors in regard to market manipulation and scams. Because the cannabis industry is still relatively new, you should keep these risks in mind as you think about your long-term savings goals.

Bottom Line: Should You Invest in Marijuana Stocks?

Though the marijuana industry is a relatively new and upcoming market, it’s still wise to conduct thorough research before purchasing shares. You should also weigh the risks associated with investing and whether your current holdings can withstand a potentially volatile pursuit. In addition, be sure to carefully determine how your portfolio may be affected by an industry still facing potential legal intervention.

Tips to Grow Your Investment Portfolio

• If you’ve exhausted all of your options in an effort to grow your investment portfolio, consider getting a financial advisor to help you out. Finding a suitable financial advisor is much easier with SmartAsset’s free matching tool. So if you’re ready to get paired with up to three advisors in your area, get started now.
• Stocks are one of the riskier investment types, so it’s essential that you have some incoming knowledge prior to investing in them. In fact, go beyond just stocks to get a better idea of the investment market at large. As a starting point, check out SmartAsset’s guide to investment types.

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