With legalization coming closer and closer to a reality, many cannabis stocks have seen increasing gains as their business procedures become easier and less restrictive. Many investors, both professional and average, are now seeking to capture these market gains and soar high with cannabis. But as with almost every other industry, you may not want to invest in the first cannabis company that you find on the market. How do you know this company’s value will increase?
With poor leadership and business planning, even a company in a prospering industry can fail. Likewise, great leadership and planning can make a company prevail among others. Knowing which companies have good valuations is key to successful investing. Though, we understand that many stoners do not have the time, or simply the motivation, to research a company’s fundamentals and business reports. Below, I have put together a list of potential places to expose yourself to the cannabis industry, as well as profit from it.
Disclaimer: I am not a financial advisor and these are only opinions.
Stick To Diversification
Personally, I focus on keeping my investments within ETFs, or exchange-traded funds. These funds are a collective of individual stocks, all similar in some way (typically by industry or sector). For example, the VTI fund tracks the entire stock market in the United States. That’s a great first step towards diversification!
And diversification can not only allow you to capture gains from other companies, it can also shield you from bad days (or weeks). Let’s say you invest in an ETF called “ABCD” and each letter represents a company. So the entire fund consists of four companies, the first being called Company A. This week, Company A reports a major loss in earnings, causing its stock price to slide significantly. If you had only invested in Company A, you would have suffered as well. However, being invested in the ABCD fund, the other three companies performed well, so you never realized the loss from Company A.
Alright, enough of the examples. Let’s talk about cannabis ETFs. Instead of throwing all your money into a single cannabis company, you may want to diversify and choose cannabis ETFs instead. What happens when a single cannabis company does poorly, let alone their local area deprives them of their business permit as cannabis goes back to being illegal? We must remember that this plant is still not federally legal in the United States, and things can change quickly (for the better or worse).
So Which Cannabis ETFs?
Now that you have a basic understanding of ETFs, let’s talk about which funds are excelling in the cannabis industry. There are many different cannabis funds out there, however there are two in particular that I would like to focus on. The first consists for four Canadian cannabis companies, while the second focuses on U.S. companies. Exposure to both markets is highly recommended for most investors.
First up we have the humorously named “Pot Pie” by M1 Finance. This investing platform has created its own version of grouping stocks, which it likes to call “slices”. They view your portfolio like a pie, and cannabis may be one of your slices. M1 is the platform that I personally use, and you can check it out for yourself by following this link:
Back to the topic, this “Pot Pie” is technically not an ETF, though it is a group of four cannabis companies. If you do not wish to use M1 Finance, you will need to set this group of stocks up yourself. Simply set each company to 25% of the group. Here are the four companies:
- Aphria Inc. (APHA)
- Aurora Cannabis Inc. (ACB)
- Cronos Group Inc. (CRON)
- Canopy Growth Corporation (CGC)
Why invest in Canadian cannabis? Well, for starters, recreational and medical cannabis is already legal in Canada, which makes doing current cannabis business much easier there than in the U.S. Things are still a bit shaky in the states, and nothing is guaranteed yet. However, Canada seems to enjoy our favorite plant, and these Canadian companies are even branching out to the U.S. In addition, many (not all) Canadian companies in the U.S. markets are seen as very safe, since Canada does not see near as much “conflict and division” as in the states.
Next up we have an actual ETF, known as AdvisorShares Pure US Cannabis ETF (or MSOS). Investing in this fund will offer exposure to some U.S. cannabis companies. In the stocks above, you were able to find some good Canadian companies, Now its time to diversify, and branch out into the states. Let’s talk about why.
Though legalization is not yet guaranteed in the United States, the team here at Reefer Post firmly believes it will happen soon, possibly in the next few years. When it does happen, cannabis business will inevitably boom, and companies who engage in all sorts of cannabis operations in the U.S. (with good business plans, which is most of them) will also see an increase in productivity.
Recently, I published an article which discussed how the new U.S. President Joe Biden could legalize cannabis federally during his term. Click here to read that article.
Other Things To Note
Investing is not rocket science. It should not be extremely complicating as some professionals on Wall Street might make it seem. An everyday stoner can capture gains in the stock market by keeping things simple and investing in the right places.
Though you may not invest in an individual company, tracking their performance is still necessary. This is especially true as legalization continues to change around the nation. If you wish to stay on top of your investments, I suggest keeping track of their business operations as well as any news stories that include them.
Cannabis is a great investment nowadays, however it should never take up your entire investment portfolio. Take the advice from an experienced cannabis consultant. Personally, I keep my cannabis stocks/funds at 10% of my entire portfolio (which is still a high percentage to some). You should adjust your cannabis exposure according to your investment style, as well as how much you wish to be involved.
I have been invested in these two funds for quite some time now. See how my cannabis stocks have been performing here: https://m1.finance/-8jYdLTtwEl3
Thanks for reading!