If you have thought about investing in the cannabis industry you are certainly not alone. Across the world and especially in Canada and the United States, people’s perceptions on the once illicit substance have evolved in recent years, and laws restricting its use have been relaxed.
Presently in the United States, 29 states have legalized medical marijuana, while 10 states, plus Washington D.C. have passed laws allowing legal cannabis for recreational purposes.
And that just seems to be the tip of the iceberg. As more states start placing questions about legal cannabis on their ballots, it’s only inevitable that it will be legalized across the entire country. From sea to shiny-eyed sea.
Meanwhile, the United States’ neighbor to the north, Canada, has legalized recreational marijuana for all people over the age of 18. And the response from consumers has been huge. Canada’s cannabis industry is expected to hit $5.4 billion by 2022.
These recent legal changes have sparked a green revolution in investing. Many investors are clamoring to get into the ground floor of the new cannabis market. The idea being that has the market inevitably expands so will returns on investments.
Before you decide if investing in the legal cannabis industry it is important to understand a bit of the basics first. Cannabis mainly consists of two chemicals, THC and CBD. THC is the psychoactive chemical that causes the sensation of “being high.” While CBD is the chemical that is used for health benefits. Examples of these benefits are pain relief and appetite stimulation.
It is the THC chemical that has caused cannabis to be considered an illegal substance in many countries including the United States. The anti-cannabis movement was at its highest in the United States during the “War on Drugs.” A time when getting caught with it could often mean heavy fines or jail time.
Although many states have legalized the recreational use of cannabis, the federal stance in the US remains that cannabis is an illicit drug. And it is unlikely that will change during a conservative presidency.
So with the basics down, you may have noticed that there are no shortage of company choices for an investor looking to begin investing in cannabis. That could lead any investor, especially a new one, feeling a little overwhelmed.
Here are three things to look for when deciding what cannabis stock to invest in:
First off, investing in cannabis stocks does carry some similarities to investing in other industries. For example, it is important to pay attention to the company’s management, make sure that their goals for the company match yours as an investor in that company’s stock.
Second, you should also pay attention to the markets the company is operating in. You are going to want to invest in a company with a large footprint in multiple markets because there is more room for growth and profits.
For instance, a company that primarily serves the Canadian market may see less growth because that market is fully opened. While a company with a presence in the United States may see more growth because there
are still large portions of the country that haven’t legalized recreational cannabis yet.
Finally, production is very important when looking at buying cannabis stock. As more markets become available there will be an increasing demand for more product to fill the needs of these new markets.
A cannabis company that is already having difficulty keeping up with demand will have trouble expanding and will be eclipsed by companies that can keep costs low while producing large quantities. It is these cannabis stocks that will be poised to grow the most.
So are there any cannabis stocks that match all these? Well, one top cannabis stock has been able to match this criteria. It is called Aurora Cannabis.
Aurora Cannabis’ management has resisted the industry trend to sell equity to other producers. This has kept Aurora independent and more competitive, all things an investor should be looking for.
Aurora has also established the largest international footprint in the industry. They currently have a presence in 25 different countries. Totally blowing its competition out of the water, the next closest is Canopy Growth with a presence in 16 countries.
Aurora also leads the field in markets outside of Canada. This too is important because Canada is a fully opened market. It will be more difficult finding new customers in a country where cannabis is legal everywhere than it would be in the United States where it is only legal in 10 states. So while Aurora’s competition duke it out in Canada for a smaller market, Aurora will be able to focus on becoming the leader in markets that are new and growing.
The cannabis company is also a leader in production. Presently, Aurora is on pace to produce more than 625,000 kilograms of cannabis yearly by as little as next year. Once again, Aurora’s closest competitor, Canopy Growth, trails Aurora by 100,000 kilograms in the same time period.
By being able to expand its unmatched production capabilities over a larger area, Aurora should be able to be an industry leader in legal cannabis production and profits. All things a potential investor would want when looking into what cannabis stock to invest in long term.
Of course investing is not without its risks. It is important to remember that markets fluctuate. In other words, the prices of stocks rise and fall. Just because a stock price falls doesn’t mean it is time to sell, if you are willing to be patient, you may see that holding on through the ups and downs is well worth it.
Like many things, when it comes to investing you’ll find that with no risk there is no reward. Keep in mind that at some point someone thought investing in Amazon or Alphabet would could be too risky.
However, based on the growing market the cannabis industry has to offer, it stands to reason that an investor willing to accept a little risk and let their investment grow and mature over time will see a return well worth the risk.