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How to Invest in Marijuana Stocks

Marijuana stocks are becoming more popular as more states legalize the medical and recreational use of the drug. In fact, you can now even invest in marijuana stocks through a normal brokerage account. However, just like any other type of stock, marijuana stocks can be risky, even if market growth is encouraging. That’s because stocks are typically some of the most dangerous investments since companies can be quite volatile. If you need help investing in marijuana stocks, consider working with a local financial advisor.

How to Invest in Marijuana Stocks

The simplest way to purchase publicly traded marijuana stocks is to open a brokerage account. After you’ve established how much you can afford to spend, you’ll be ready to register and fund your account. In addition, whether it’s exchange-traded funds (ETFs) or stocks that you’re interested in, you’ll have a range of investment options to choose from.

When choosing a brokerage to open an account with, consider what features you find most important. For example, some brokerages specialize in simplified mobile/online trading, whereas others offer extensive stock market tools that you can use for analysis. Here are a few popular options to get you started:

Brokerage Comparison
Brokerage Firm Stock Trading Fees Minimum Best For
Robinhood
Read Review
$0 $0 – Mobile/online traders
– Self-sufficient investors
Merrill Edge
Read Review
$0 $0 – Bank of America account holders
– Those who prioritize customer support
Charles Schwab
Read Review
$0 $0 – Sophisticated online traders
– New investors who can afford to pay for assistance

If you’re new to investing or don’t much time or energy to devote to it, a financial advisor may be able to help. Advisors typically specialize in different types of investments, strategies and markets, so try to find one who aligns with your needs. Also, make sure you do your research on the various types of financial advisor fees. If you need help choosing an advisor, SmartAsset’s free financial advisor matching tool can help.

Overview of the Marijuana Industry

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

Marijuana Market Overview
Marijuana Growers & Producers – Marijuana cultivation
– Cannabis products
– Product distribution
Cannabis-Focused Drug-Makers – Pharmaceuticals
– Cannabis biotech companies
Ancillary Product & Service Providers – Support for marijuana growers
– Hydroponic products

The marijuana industry is growing rapidly, 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 plenty 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 stocks. In fact, some of the most popular Nasdaq-listed U.S. marijuana stocks include Tilray Inc. (TLRY), Cresco Labs Inc., Cronos Group Inc. (CRON) and Jushi Holdings Inc.

Types of Marijuana Products

Marijuana generally falls into two different categories: medical and recreational. While medical cannabis is legal in 36 states, Washington, D.C., Guam, Puerto Rico and the U.S. Virgin Islands, recreational use is legally permitted in only 19 states, D.C. and Guam.

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 CBD and THC are naturally occurring compounds, and they are usually 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 Stocks

How to Invest in Marijuana Stocks

Because marijuana is still federally illegal in the U.S., the market poses notable risk to potential investors. 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 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 an up and coming 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.

A great first step when deciding whether to invest is to determine your risk tolerance. A financial advisor can help you with this, but it involves choosing your financial goals and when you want to achieve them by. This pursuit will likely lead you to the best decision possible for your financial situation.

Tips for Growing Your Investments

How to Invest in Marijuana Stocks

  • If you have questions about various investment strategies, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, 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.

Photo credit: ©iStock.com/SEASTOCK, ©iStock.com/Fokusiert,©iStock.com/bee32

Rickie Houston CEPF® Rickie Houston writes on a variety of personal finance topics for SmartAsset. His expertise includes retirement and banking. Rickie is a Certified Educator in Personal Finance (CEPF®). He graduated from Boston University where he received a bachelor’s degree in journalism. He’s contributed to work published in the Boston Globe and has worked alongside award-winning faculty for the New England Center of Investigative Reporting at Boston University. Rickie also enjoys playing the guitar, traveling abroad and discovering new music. He is originally from Wilmington, North Carolina.
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