Should You Invest in Green Pharma Stocks?

There is a new boom in the ‘green pharma’ industry after the US has made the sale of recreational marijuana in many states. As such, the upstart legal cannabis market is attracting growing interest among stock investors, many of whom are excited about getting early on the promising but speculative business. Investors are looking to make enormous gains in the new market that generated $8.5 billion in legal pot spending in 2017, a figure that’s projected to reach $23.4 billion by 2022.

If the lucrative returns have you thinking of investing in cannabis-related shares, you’re not alone. More and more investors are buying cannabis stocks with expectations of making large profits. So, should you invest in pot-related stocks considering their speculative nature? Here’re some things to know that’ll help you make the right decision.

The Case for Investing in Pot Stocks

Many weed companies are going public, making their shares available for purchase by the general public. The growth potential of marijuana companies is one of the main reasons why you may want to consider purchasing cannabis-related shares. Another reason to invest in marijuana stocks is the increasing number of jurisdictions legalizing marijuana and the growth rate of the product. Canada legalized recreational marijuana in 2018 and Germany legalized cannabis for medical use in 2017. Canada’s marijuana sales are projected to grow to $5.4 billion by 2022 up from $600 million in 2018. Germany’s marijuana market, on the other hand, is projected to rise from around $9 million in 2017 to a whopping $1.6 billion by 2022.

What to Look for In Cannabis Stocks

When considering investing in cannabis stocks, treat the stocks like any other stock you’d consider purchasing. Research the company’s management team, its business strategy and how it compares to its peers, its competitive position and its financial status.

If you’re looking to invest in a company that grows, harvests and extracts marijuana, you may want to refer them to Trimleaf, a company that sells high-quality equipment from top brands in the industry. The company sells a variety of horticultural equipment from LED grow lights and greenhouses to trimmer accessories, harvest equipment, and extraction accessories. You can visit trimleaf.com, for more information.

Be sure to research the stock’s valuation and unique factors for certain cannabis stocks. Additionally, find out how many convertibles securities and warrants have been issued by the company.

Strategies for Investing

Investing in pot shares depends on your investment risk tolerance. The key to determining the strategy you can use in investing in cannabis-related shares is how aggressive of an investor you are.

Like with any developing industry there are some very small (and high risk) start-ups which can provide high returns but an equally high chance of losses. Or there are more established corporate players, providing a steadier low risk/low reward investment opportunity.

Pure-play marijuana stocks

These stocks are from companies that derive most or all their revenue from products or services related to cannabis. They have high potential returns due to the growth prospects discussed above. Pure-play cannabis stocks are not without risks – they have a high risk and their growth cannot go beyond what is already projected in stock prices. Examples of pure-play cannabis stocks are Tilray, Aurora Cannabis, and Curaleaf Holdings.

Stocks with cannabis-related businesses

Investors who’d like to lower their risk can invest in companies that have an interest in cannabis-related business but also make money through other activities. One disadvantage of these stocks is lower returns than pure-play cannabis stocks when the venture’s non-cannabis business doesn’t grow as much as the cannabis-related businesses do. Companies with cannabis-related activities include KushCo, Innovative Industrial Properties, and Constellation Brands.

Cannabis exchange-traded funds (ETFs)

Marijuana ETFs are another great option for investors who want to lower their risk level. The two largest marijuana are the ETFMG Alternative Harvest ETF and the Horizons Marijuana Life Sciences Index ETF.

Is Cannabis a Good Investment Opportunity?

Like any opportunity in emerging markets, you need to bring out the crystal ball and try and forecast where things will like years down the line. The investment side of the ‘green pharma’ industry is similar to the early dot com days, or perhaps the cyrptocurrency market. There are lots of players fighting for a monopoly share and it’s hard to predict who will take it at such an early stage.

It is a market that looks like it can provide fantastic returns, but the uncertainty is which players will be the ones to come out on top. Therefore it should be a small percentage of your overall portfolio (no more than 5% of your total investments).

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