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Everything You Need to Know About Cannabis Stocks

Everything You Need to Know About Cannabis Stocks

Stock investment is almost always a risky endeavor, but, if you take the time to thoroughly research your options, you could see incredible returns on your investment. Stock trading requires close attention to detail and staying consistently updated with the latest news that could affect your investments. The cannabis industry is relatively new, but it’s already making waves in the investor community. Cannabis companies, biotech organizations, pharmaceutical companies, and wellness product manufacturers working with cannabis are now seeing tremendous growth, a sign that it may be time for you to invest.

Whenever a new consumer trend develops or a new niche market appears, the stock market responds. Volatility is the norm for any stock trader; investors are constantly searching for stocks that show potential for growth and market disruptions are catastrophic for some and boons for others. Cannabis stocks are growing at a very rapid pace in North America thanks to Canada’s recent legalization of recreational cannabis for adults and the United States’ push for legalization of medical and recreational cannabis. Canadian cannabis companies started listing their companies’ stocks on American exchanges and vice versa.

If recent shifts in the cannabis stock market are indications of future potential, it’s vital for new investors to know a bit of the recent history around cannabis stocks and which stocks hold the greatest potential for investment growth.

Cannabis Stocks in Recent Years

Whenever a new commodity enters the trading floor, the value of the commodity largely depends on public demand and investor faith. In the early days of cannabis stock trading, many investors lost money due to the challenges facing new cannabis companies. At first, the cannabis industry faced minimal room for profit growth; new companies breaking into the cannabis market faced innumerable challenges, often burning through cash on hand to meet consumer demand and expand operations. Many of these companies went into debt after the mad rush to compete with other burgeoning cannabis companies. Ultimately, too much demand was the main problem for many companies during the early days of cannabis stock investment.

After the Canadian government legalized recreational cannabis for adults, Canadian cannabis companies faced serious issues in the form of distribution bottlenecks, licensing backlogs, and production in the face of growing demand. Companies struggled to meet government compliance demands and many still do, causing some cannabis companies to halt production or even go out of business shortly after opening. Many of these growing pains have resolved for the cannabis market recently, but investors must still choose their investments carefully.

The Current Cannabis Stock Landscape

If you plan to invest money, you should know which stocks hold the greatest potential. In past years, many cannabis stock traders operated only on over the counter exchanges, a turnoff for many experienced investors who prefer doing business on larger exchanges. However, in recent months and years, a number of cannabis stocks have moved from over the counter trading platforms to the NASDAQ and other larger US exchanges. Many investors prefer to trade stocks on the NASDAQ because of the increased liquidity and tighter spread than over the counter trading platforms generally allow.

Stock price hinges on investor faith, and the cannabis companies appearing on the NASDAQ almost automatically receive a boost in credibility; the number of cannabis stocks moving from over the counter trading to the NASDAQ is a clear indication of the rapid growth happening in the cannabis market. Investors are far more likely to consider investing in a cannabis company with a more professional and credible appearance, and a NASDAQ listing is incredibly helpful in this regard.

Top Cannabis Stocks Today

Individual research is crucial for stock investment. If you’re considering investing in cannabis stocks, consider some of the top-performing cannabis stocks on the major US exchanges:

  • Arena Pharmaceuticals, Inc. (ARNA), a biotech firm manufacturing cannabis-based medications and drugs.
  • Cara Therapeutics, Inc. (CARA), a clinical-stage biotech company focused on product development for the treatment of pain and pruritis.
  • Corbus Pharmaceutical Holdings, Inc. (CRBP), a cannabis biotech company developing products to treat inflammatory, fibrotic, and chronic diseases.
  • Cronos Group, Inc. (CRON), a Canadian cannabis company with well-established partner experience that owns and seeks licensed cannabis producers and cannabis subsidiaries.
  • GW Pharmaceuticals PLC (GWPH), a pharmaceutical company developing a portfolio of cannabinoid medications. This company also produced the first FDA-approved cannabis medication, Epidiolex, and is currently researching cannabinoid medications for autism spectrum disorder, schizophrenia, and glioma.
  • Marrone Bio Innovations Inc. (MBII), a company that produces bio-based pest management and horticultural products.
  • New Age Beverages Corp. (NBEV), a beverage company focused on wellness that produces kombucha, yerba mate, and green tea products. The company has developed a line of hemp oil-infused beverages, bringing them into the sphere of cannabis stocks.
  • Village Farms International (VFF), a long-standing figure of the North American greenhouse produce production market that only recently delved into cannabis cultivation with tremendous success.

Look at the recent performance of these stocks to determine which types of stocks are right for you. New opportunities for investment in the cannabis market appear every day, but new investors must take time to learn key industry terminology and a few best practices for stock trading in general.

Tips for Making the Most of Your Cannabis Stock Investments

Stock trading may seem straightforward initially, but don’t make the mistake of entering the stock trading world without doing your research. A few simple tips can help protect your investment and may even help you find great stocks that offer fantastic returns on your investments. 

  1. Understand Cannabis Industry Terminology

If you’re going to invest in cannabis stocks, you need to understand the business models for the companies in which you invest. For instance, do you know what cannabidiol is? Or what the active chemicals in medical and recreational cannabis are? Take time to research basic cannabis industry terminology so you can fully understand cannabis companies’ investor relations materials and business models.

  1. Know a Company’s Market Reach Before Investing

If you want to invest in the US cannabis industry, check to ensure the companies in which you invest operate in the US. You must also invest in the right type of products and research those markets carefully. For example, if you invest in a cannabis company that produces cannabis and cannabis products for recreational use, those products will only appear in a few states in the US until other states pass legislation to legalize recreational cannabis.

Medical cannabis offers greater physical market reach, but restrictions on qualifying conditions essentially limit demand under different states’ laws. However, there is tremendous potential for investment in both sectors of the cannabis market if you take time to carefully research your options.

  1. Diversify Your Investments

The golden rule of stock trading is to never put all your eggs in one basket. Investing in just one or two stocks could mean losing everything if those companies do not pan out the way you hope. Diversifying your investment portfolio may seem like the more volatile option, and you will have more stocks to watch, but it ultimately lowers your overall investment risk in case one or two don’t perform as expected.

  1. Start Small

Unless you are exceptionally confident in a diverse buy-and-hold strategy, you’re probably looking forward to making the occasional small trade for quick profits. Trading over the counter can be a great way to break into stock trading with less risk than you would face on larger exchanges. Cannabis stocks could offer great potential for new investors looking to experiment with over the counter markets.

Stock market analysts predict the cannabis market will exceed $30 billion by 2020, making it a great opportunity for new and seasoned investors alike. The Canadian cannabis market continues to see rapid growth, and more US states are considering legislation to legalize medical and recreational cannabis. Now could be the perfect time for investors to start cultivating strong and diverse cannabis stock portfolios.