Investing In Marijuana Stocks? Here Are 3 Things You Need To Know

An introduction to the world of investing in cannabis stocks.


Everybody’s getting rich from marijuana stocks! Or at least that’s what a lot of the headlines will lead you to believe. But make no mistake, while plenty of fortunes have been made over the past few years, there are also plenty of folks who have lost their shirts by investing in the wrong cannabis stocks.

Understand, I don’t say this to dissuade you from investing in cannabis stocks.  In fact, I could easily argue that the cannabis market represents one of the greatest investment opportunities of the 21st century.  Just ask those investors who took my advice when I recommended they buy shares of Canopy Growth Corporation (TSX: WEED) when it was trading for $1.60 a share.

Last week, WEED hit a new 52-week high of $48.72. That’s a gain of 2,945%, turning a simple $5,000 investment into $150,000.  And this is not the only cannabis stock I recommended that helped folks make a lot of money.  In fact, of the 15 marijuana stocks I’ve recommended since 2015, twelve have delivered gains of more than 100%, with three delivering gains of more than 1,200%.

Now understand, I’m not writing this to chest-pound, but instead to show you that I have a long history of helping investors make a lot of money in the cannabis space, and I want to help you, too.  Which is why I put together this list of three things you need to know before investing in cannabis stocks.  So let’s get started.

Understanding The Cannabis Stock Market

Courtesy of Green Rush Daily

One of the best pieces of investment advice I was ever given was from a mining analyst who trained me in my early years.  This guy made tens of millions of dollars in the mining space, so when he offered this advice, I took it to heart.  He told me, quite simply, whatever you decide to invest in, become an expert in it.

Seems simple enough, but to be honest, I don’t know many successful investors who don’t live and die by this rule.  In fact, I find that most investors do more research on the televisions and cars they buy than they do on the cannabis stocks in which they invest.  Which is pretty crazy when you think about it.

In any event, I can’t make you an investment expert in the cannabis industry, I can provide you with the foundation for which you can build your knowledge base by sharing the current state of the market.

Canadian Marijuana Stocks

As you probably heard, Canada has announced that on October 17, this bold and beautiful plant that we love and respect so much will become fully legal throughout the entire country.  Although Canada isn’t the first country to fully legalize cannabis (that honor goes to Uruguay), it has become ground zero for cannabis investors.  In fact, the most powerful cannabis companies in the world call Canada home. Investors who got exposure to this market before the decision was made to fully legalize cannabis in Canada are now sitting on mountains of cash.  So much, in fact, that those new to the world of marijuana stocks are rushing into Canada to get a piece of the action.

On the surface, this makes sense.  And make no mistake, as we get closer and closer to October 17, quite a few of these Canadian marijuana stocks will continue to shine.  But when it comes to investing, you can’t rely on that which is just on the surface.

The truth is, while the Canadian cannabis market is incredibly lucrative, many of these marijuana stocks are incredibly overvalued, trading at valuations that have no basis in reality.  So make no mistake: When the excitement dies down, many of these cannabis stocks will begin to sell off.  That’s why I’ve been encouraging investors to focus less on Canada and more on the next market that’s set to soar: the United States.

The United States of Cannabis

The cannabis market in the United States reminds me a lot of the Canadian cannabis market from a few years back: Before full-scale legalization was even approved on a national level.

In the United States, a federal prohibition on cannabis remains in place.  But thanks to the beauty of states’ rights, individual states have been legalizing cannabis for both medicinal and recreational purposes for years.  Although only over the past few years have we seen a real momentum take hold.

It’s pretty simple, actually.  States that have taken the appropriate steps to legalize the adult use of cannabis have benefitted from a flood of new tax revenues and massive investments in local economies.  Job creation has also been a huge benefit for states that have legalized, and politicians that have supported legalization have enjoyed major support from voters.  In other words, the states that have seen the very real benefits of legalization will never go back to prohibition.  It just doesn’t make sense from an economic and political perspective.

States With Legal Marijuana

The bottom line is that states such as Colorado, California, and Nevada have been making so much money from the legalization of cannabis, not even threats from the attorney general of the United States will send them back to the stone age of prohibition.

Today, there are 29 states (plus Washington D.C.) that have legalized cannabis in some form.  After this next election, there could be three more, with the state of Michigan very likely to legalize cannabis for adult-use.

Individual states have taken the legalization issue into their own hands, and they’ve sparked a domino effect that will ultimately end in the repeal of cannabis prohibition in the United States.  My prediction is that the federal prohibition on cannabis will be lifted no later than 2021.  That means we have about three years to stake our claim now – before US marijuana stocks head into the same territory that Canadian cannabis stocks are in today:  highly overvalued with the big money having already been made by early investors.

US-Based Cannabis Stocks Worth Monitoring

One piece of advice I’ll give you in terms of the US cannabis market is that you should definitely keep up to date with all the latest developments in new legalization legislation.  Tom Angell of the Marijuana Moment does a great job of providing this information for investors, and I encourage you to check it out his website here.

Global Cannabis Market

While the Canadian and US cannabis markets are two of the more popular cannabis markets for investors, you must understand that the legalization of cannabis is now a global movement. Outside of the U.S. and Canada, there are a number of countries that are now embracing, or on the verge of embracing, legalization or decriminalization in some form.

Countries With Legalized Or Decriminalized Cannabis

  • Mexico
  • Germany
  • Israel
  • Australia
  • Uruguay
  • Peru
  • Spain
  • Argentina
  • Jamaica
  • Portugal
  • Columbia
  • Czech Republic
  • Norway
  • Ukraine
  • Estonia
  • Switzerland

While some of these countries have only recently decriminalized the plant in certain instances, make no mistake that this leaves the door open for future efforts to legalize.

Publicly Trading Companies That Can Export Cannabis

In these international markets where legalization exists in some form, certainly some are more lucrative than others, and some are even allowing for the import of cannabis.  A number of Canadian cannabis companies either already export cannabis or have the ability to export cannabis outside of Canada.  Some of these include: Canopy Growth Corporation, Aphria, Inc. (TSX: APH) Aurora Cannabis (TSX: ACB), OrganiGram Holdings (TSX-V: OGI), and Emblem Corp. (TSX-V: EMC).

Knowing Your Source

AlphaLab Startup Accelerator/Flickr

Recently, the number of mainstream financial publications providing investment analysis on the cannabis market increased.  Unfortunately, most are relying on analysts that don’t know the first thing about the cannabis market.  They are NOT experts, but they write for some of the biggest financial publications in the world.  Sadly, investors are taking their advice, and probably missing out on the best opportunities.

Cannabis Stock Experts

Truth is, there really are only a handful of quality sources out there for cannabis investors.  Here are a few that I would recommend following on Twitter to get their daily feeds…

Alan Brochstein

Tom Angell

Javier Hasse

Debra Borchardt

These analysts have a solid history of providing accurate and honest analysis.  While you should always do your own due diligence, these folks can serve as excellent sources of market intelligence.

You can also follow my daily feeds:

Marijuana Stocks Come With Risks

Daniel Dionne/Flickr

While a lot of folks have made a lot of money in the cannabis space, there are still risks.  As an investor, you have to decide for yourself which risks are worth it. Don’t invest your hard-earned money into this space without acknowledging the gamble you’re making.

Jeff Sessions

One risk that has long been a part of investing in cannabis stocks is federal prohibition. At least, in the United States. At any time, Jeff Sessions and his army of prohibitionists can launch an attack on cannabis operations. Even ones that are in full compliance with state laws.

Personally, I don’t see this as much of a risk.  We’re too far down the rabbit hole now.  No state that has legalized is going to give up this gift of prosperity. It is unlikely that the United States will support a crackdown on states that have legalized cannabis.  I personally don’t see this as a risk, but you have to make these kinds of decisions for yourself.

Pump and Dump

One risk I do see is the reality of more and more “shady” cannabis companies going public. In fact, many are spending millions just to promote their marijuana stocks.  This kind of thing isn’t exclusive to the cannabis industry. However, more companies are attempting to get rich by pumping and dumping in this space.

If you’re unfamiliar, a pump and dump, as defined in Investopedia, is a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. The perpetrators of this scheme already have an established position in the company’s stock. Then, they sell their positions after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.

The risks involved with investing in marijuana stocks is why it’s so important to rely on the real experts in this space to help you. Now today’s piece is really just an introduction to the world of cannabis investing. Going forward, I will be providing you with updates that will help you better understand this market.

" Jeff Siegel : @ ."