The marijuana industry is rapidly growing as more states legalize the drug on both a medicinal and recreational level. However, for investors interested in buying stock, it’s important to consider the risk that comes with investing in the industry. Here’s everything you need to know about buying marijuana stocks. And if you want more guidance investing in the cannabis sector and beyond, considering enlisting the help of a trusted financial advisor.
How to Buy Marijuana Stocks With a Brokerage Account
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 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.
|Brokerage Firm||Trading Fees||Minimum||Best For|
|$0||$0||– Mobile/online traders |
– Self-sufficient investors
|Merrill Edge |
|$6.95||$0||– Bank of America account holders |
– Customer support users
|TD Ameritrade |
|$6.95||$0||– Online traders |
– Customers who value support
Overview of the Marijuana Market
If you’re looking to buy equity in the marijuana market, you should take note of several factors before purchasing stock. 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). All companies fall under one of three stock categories: marijuana growers and producers, cannabis-focused drug makers and ancillary and products and services providers.
|Marijuana Stock Overview|
|Marijuana Growers/Producers||– Marijuana cultivation |
– Cannabis products
– Product distribution
|Cannabis-Focused Drug Makers||– Pharmaceuticals |
– Cannabis biotech companies
|Ancillary Products and Services Providers||– Support for marijuana growers|
Types of Marijuana Products
Marijuana generally falls into two different categories: medical and recreational. While medical cannabis is legal in 33 states and the District of Colombia, recreational use is only legally permitted in 11 states. In addition, other types of cannabis products fall within those categories.
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.
Types of Marijuana Stocks
Before investing in the cannabis market, you should consider the different types of marijuana stocks available to buyers. What separates the stock types are the companies and businesses that offer them. Specifically, the first type includes marijuana growers and retailers, while the second includes pharmaceutical companies and cannabis biotech companies. Finally, investors can also purchase stock under the companies who supply and support marijuana growers with ancillary products and services.
Risks of Investing in Marijuana Stocks
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.
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 Become a Better Investor
- Stocks are often unpredictable, that’s why it’s important to know how much you can safely invest without damaging your finances. It’s always important to spend no more than you can afford to lose, but exactly how much can you afford to spend? SmartAsset’s investment calculator can help you determine just that. You’ll also get a stronger understanding of the potential return associated with your investments. You’ll just need your initial investment amount, the amount of money and the rate at which you’ll contribute, the expected rate of return and the point at which you’ll begin withdrawing money.
- If you’re looking to grow your investment portfolio, with stronger asset allocation, you should consider hiring a financial advisor. SmartAsset’s financial advisor matching tool will pair you with up to three local advisors who can help you do just that.
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