There is no question that the marijuana industry is one of the fastest-growing industries in the global market. With its increasing consumption and utility, many investors are showing interest in marijuana stocks. Investing in any sector needs some analysis and research that will enable you to set up a strategic plan. Understanding the industry from its fundamental perspective gives you the ability to choose the right stocks. In this article, you will learn how to select the best marijuana stocks in 2020. In addition, you’ll get some useful tips on how to trade marijuana stocks.
Factors to Consider Before Choosing Marijuana Stocks
Choosing random stocks without any analysis is counterproductive to a good investment. Knowing the market and understanding the factors that are relevant to find the stock as a good stock to invest is a challenge for an investor. Here we will try to understand the marijuana industry and various aspects we need to look at before choosing stocks for investment.
Types the Marijuana products
There are primarily two types of marijuana products available, such as medicinal and recreational products. Medical marijuana is legal in many parts of the world. Medicinal drugs are used to alleviate stress, anxiety and also to relieve pain. Whereas recreational marijuana is used for adult use, this is also growing acceptance, but such products do not have much legal authority to market as medicinal marijuana.
Types of marijuana stocks
Growers and manufacturers, pharmaceutical and ancillary goods and services providers for marijuana are the main types of marijuana stocks. There are many available stocks of marijuana that are primarily focused on the cultivation and distribution of cannabis products. Many of them are major retailers that specifically sell medicinal or recreational marijuana products. Whereas many biotech or pharmaceutical firms that primarily manufacture marijuana medicines. Other companies that are indirectly connected to marijuana for the supply of secondary products and services for growing, marketing, packaging, and distribution.
Risks associated with marijuana stocks
Investing in different stocks entails a varying degree of risk. It is also easier to consider the risks associated with every business before investing. The cannabis industry has other risk factors, such as legal authorization risks and supply-demand risks. The biggest risk factor to be considered is leagal authorization as a consusmption and the sale of drugs is illegal in most of the world. Second, supply-demand risks, which means that if supply is higher than demand, there is a risk associated with it. Other risk factors like OTC stock risk, meaning stocks that do not have much liquidity. Therefore, it is better to choose the right stock considering these risk factors.
Other factors before choosing a marijuana stock
Check the company profile of the marijuana stock the same way you look for it in any other stock. Consider statistical financial data, growth strategy, performance, assets, debt, etc. Another special factor to consider when choosing stock of marijuana is the all-in cost and the cash cost per gram. Lower the cost higher the chances of competing at the time of supply-demand uncertainties. Finally, look at the number of legal disputes or warrants against a company that may reduce the stock price in the future.
Now you have a basic understanding of the marijuana industry and the factors you need to weigh before choosing the right marijuana stocks. Needless to say, almost every industry has been swept off by the global pandemic of COVID-19. However, many cannabis industry analysts have an optimistic outlook on the success of marijuana stocks. Make sure you spend enough time analyzing the factors discussed above when choosing a marijuana stock before investing.