Author: Valery Zulia
Marijuana ventures are exploding throughout the world. According to Grand View Market Research, the value of the global legal cannabis market is anticipated to rise at a compound annual growth rate of 26.3 percent and reach $91.5 billion by 2028.
With such strong projected growth, it is understandable why so many investors are interested in purchasing cannabis stocks.
What to look for in a Marijuana Stock
If you’re thinking about buying marijuana stock, you should:
- Examine the management group
- Evaluate the company’s competitive positioning and growth plan
- Examine the company’s financial records carefully
- Check the company’s issuance of convertible securities and warrants. A high number on a percentage basis might indicate that the stock will be significantly diluted in the future, which could result in a significant decline in share price.
Learn about the Types of Marijuana Businesses
The three main categories of businesses in the marijuana market are:
- Cannabis Producers and Traders: These businesses grow cannabis (typically in greenhouses), harvest the crops, and then sell the finished goods to consumers. Some also run shops where cannabis is sold for either medicinal or recreational purposes.
- Biotech Businesses with a Focus on Cannabis: To create innovative pharmaceutical medications, several biotech firms work with the cannabis business by extracting cannabinoids from marijuana.
- Providers of Ancillary Goods and Services: These businesses don’t work with the plants; instead, they assist the marijuana market by offering goods and services, including hydroponics, lighting, packaging, and management.
Risks of Investing in the Marijuana Industry
Any sort of asset investment has some level of risk. You should be aware of the following potential risks when investing in marijuana stocks:
- Government Policies: In the United States, it is still illegal to sell marijuana at the federal level. In addition, banks that work with marijuana-related enterprises are subject to tight legal prohibitions under US federal law. Due to this, American cannabis businesses find it challenging to get essential banking services. Although there has been a rise in political support for decriminalizing or legalizing marijuana at the federal level, no action is guaranteed to take place.
- Financial Limitations: Many participants in the cannabis field are developing businesses that risk running out of money. They frequently issue new shares to raise funds, which lowers the value of the current shares. Financially constrained marijuana businesses may still find it challenging to raise the necessary funds to operate.
- The Imbalance between Supply and Demand: Marijuana is particularly susceptible to fluctuations in supply and demand as a young enterprise in the agricultural sector. In order to fulfill the demand for recreational marijuana, Canadian marijuana farmers originally launched significant expansion projects to expand production capacity. Later, several businesses scaled back production because of Canada’s excess supply of cannabis, which pushed down prices and hurt income.
Conclusion
Not everyone should invest in marijuana businesses. The best strategy for some, especially cautious investors, is to stay away from these kinds of companies. Cannabis firms should only be included in the portfolios of investors who are aware of and comfortable with taking on significant risk.