Maybe you’ve been sitting on the sidelines, wondering how to get in on the pot stocks investing game. If you have, then this guide is for you. Whether you’re a beginner, or you’ve been at it for some while, you’ll find something of value in the info we’re about to share with you.
Before we begin, just know that our goal is to give you the information and tools you need to get started on our own. We want you to know how to research the companies you’re interested in, where to find reliable market data, trends, and forecasts. You need to be able to understand why you want to invest in a particular company, and generally what kind of a return you expect to get out of it.
And one more thing: We are not a licensed brokerage, so we are not giving you any advice like you would expect from one. Rather than advice, again, we consider this to be an informational overview that will help you figure out how and where to get your own info. How to make smart investing choices in weed.
This is how we want to help. So here’s Pot Stocks: The Ultimate Guide To Investing:
1. Start with education
Don’t say “yeah, yeah, yeah.” Really. Do your homework. Do this before you start doing anything with your money. Especially when it comes to investing in something as speculative as weed, you need to learn about the industry. You have to do this before you consider putting a penny anywhere. Whether it comes to learning the language, how to find a broker, or what to actually buy, do your research. Don’t wing it.
Why are we emphasizing that? Because weed investing is not some get rich quick scheme that will enable you to make a gazillion dollars overnight. While the cannabis industry may be growing exponentially, with tons of potential and opportunity in the coming years, it’s still a young and volatile business sector. That comes with risk. So if you’re in it, you’ll want to be in it for the long term, and you learn everything you can about what you’re doing. Hopefully you also have a passion for the plant and for the history of cannabis, including a genuine desire to become a lifelong student and advocate. If so, that approach will help you.
2. Publications to read
We’re going to keep repeating this: The cannabis industry, while exciting, is still in its infancy. As a result, one of the challenges we currently face is being taken seriously. That said, some investment research firms are doing just that, and those are the ones that you want to pay attention to. While you can always find self-described analysts on the web, pumping up one penny stock over another, they sometimes do so without anything substantive to back it up. So, you’ll want to take what they have to say with a grain of salt. Instead, look for in-depth, substantive, unbiased, quality content. You can find plenty of resources. Here are some good classics to get you started:
We like Morningstar as a good starting point. You can see current top investment picks from their 150+ analysts, some of which includes the latest and greatest in weed. The site also offers premium features, if want more in depth content. What’s cool about Morningstar is that you can get a free 14 day trial, peruse the site, and see if it’s for you, before buying.
Wall Street Journal
When you think of the WSJ, you probably think of a conservative’s take on the news of the day. Now while that is true, remember that WSJ has historically been one of the original investment reads, so there’s a reason why it’s still around. This is a great resource if you want top quality investment info, plus world class reporting on breaking news. Get it all in one place. If that sounds like a good potential fit for you, check out here.
Forbes is another good choice, similar to the WSJ in terms of offering world class business reporting in addition to investment tips. In fact, you can find columnists that write about the weed industry from time to time, so you should check it out if you also like those kinds of opinion pieces.
You know this one, right? Of course you do. High Times was around long before legal cannabis became a thing. It’s still a great place to get an overall sense of the industry, especially from a consumer standpoint. Get the latest and greatest on strains, cool products, and more.
Marijuana Business Daily
The Marijuana Business Daily is another other good site to put on your list. They cover the legal cannabis industry in the U.S. and globally, with daily industry news & data. If you want research, statistics, and charts on pot stocks, this site is an excellent resource to follow.
The National Organization for the Reform of Marijuana Laws (NORML) is definitely a resource you should put on your list, regardless of your investing interests. NORML is an amazing non profit organization, whose mission is to help legalize cannabis on a federal level. If you want a good, unbiased overview of state and federal legalization efforts, we highly recommend you follow their site and get their newsletters.
3. What about cannabis influencers?
There’s some out there, but again, do your own research. The following influencers can be helpful in terms of making you aware of investment opportunities that exist; opportunities you might not be otherwise aware of. That said, we still recommend that you thoroughly vet any tips that you receive from influencers, on your own.
@stock_mj – Air Force Intelligence Officer turned cannabis investor and writer. Also has a website.
@weedstreet420 – Canadian focused analyst. Also has a site with up to date recommendations.
@GreenPageNews – Aiming to be the front page of the cannabis industry, with stock news and commentary.
CannaInsider – Podcast featuring weekly interviews with leading voices in the rapidly developing cannabis industry. Visionaries discuss the trends and technology that are shaping the business. Episodes include subjects such as what is going on in weed, which states are legalizing and when, and emerging jobs.
New Cannabis Ventures – News and highlights covering promising companies and influential investors in the cannabis industry.
Investing in Cannabis: The Next Great Investment Opportunity – Popular book examining the rapidly expanding world of cannabis investments. Written by an experienced veteran in “vice investing,” this book takes an in-depth look at all aspects of publicly traded stocks in the cannabis industry for medical or recreational use.
4. So what makes a good weed stock?
Want to know what to look for in a pot stock? Here’s a secret: The same thing you that should look for in any other type of investment you want to make: What can you learn about the company? How long have they been around? What’s their bottom line like, when you read their annual report? Do they have strong fundamentals, such as stable finances, solid investors, and a knowledgeable, capable, management team?
Assuming the company is solid, stable and growing, what else do they have to offer in terms of a wise selection? Do they have proprietary technology or methods? Strategic partners? Maybe they’ve established early mover advantage in emerging markets, the way Cresco Labs has? Does the company have any other kinds of new developments happening, that you’ve seen in the news? All of these things can make a stock a worthwhile investment, especially in a market as young as cannabis.
5. Some pot terminology you should know
Learn cannabis business terms so that you know what you’re talking about. You’ll start to come across some of them frequently, such as MSO, SSO, Canadian LP, and Vertical Integrator. What do these mean?
Multi State Operator, meaning a U.S. cannabis company operating in more than one state. Now remember, cannabis is still illegal on a federal level, so interstate commerce does not yet exist. As a result, the fact that these companies have licenses to operate independently in a number of states gives them a ton of street cred, with stocks are very sought after.
Single State Operator, meaning that the company is limited to operating in just that one state.
This term refers to the Canadian companies that were some of the first companies in weed to be publicly traded. Now remember, these companies can’t yet operate in the U.S., although you can find opportunities to invest in them.
This term essentially refers to a company that is self contained. All operations regarding the plant, from the seed to point of sale, are contained in divisions within that particular company. As long as pot remains illegal federally, we will continue to see a high number of Vertical Integrators operating in the various states in which weed is legal.
6. Investing terminology you should know
Investopedia is a fantastic resource for this kind of thing. If you’re a newbie, just getting started, here’s a great article to familiarize yourself with basic finance terms.
In addition, Investopedia has a comprehensive glossary containing every definition you could possibly want when it comes to finance. Keep this guide handy when you are confused about financial terms and investing in weed. Some terms that you should know, ones you may not have heard before, include:
This is a financial instrument that represents some type of financial value, and the investor’s ownership position, usually in the form of a stock or bond.
Also known as equity, this is a security that represents the ownership of a fraction of a corporation.
A fixed income instrument that represents a loan made by an investor to a borrower.
An option is a financial derivative that gives buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date.
When an investor borrows a security and sells it on the open market, planning to buy it back later for less money.
This is when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall, to buy it in order to forestall even greater losses. Their scramble to buy only adds to the upward pressure on the stock’s price.
Condition of a financial market in which prices are rising or are expected to rise.
This is when a market experiences prolonged price declines. Typically when prices fall 20% or more from recent highs, amid widespread negative investor sentiment. A Bear market may also accompany general economic downturns such as a recession.
The analytical process of determining the current or projected worth of an asset or a company.
These terms are just the beginning
We strongly encourage you to get acquainted and comfortable with this language and more, so that you will become that much stronger an investor.
7. Cannabis industry developments
Two huge developments to be aware of are bills that we’ve covered in the past. One is the SAFE Banking Act, regarding federal banking legislation in weed, which is predicted to pass this year. The other one is the MORE Act, which has more to do with social equity, investment in diverse communities, and the expunging of crimes. Assuming that both of these pieces of legislation pass in 2021, they could have an enormous impact on pot stocks and the weed industry in general.
8. Ways to invest
So once you take the time to learn the basics of the industry, finance, and the related terminology, you are ready for the next step. You will be what is called a retail investor. You’re basically someone who invests on their own behalf. This is opposed to an institutional investor, who invests for others, such as a broker.
So, as a retail investor, you’ll need to decide how you want to invest. Do you want to do it yourself? Do you want assistance through a broker? Much of that comes down to what your personal preferences and goals are.
You do have the option these days to download an app, and buy and sell stock on your own. We assume you’ve heard everything there is to know about using online investment apps in the news recently. Whether of not you want to use this option is up to you, but learn what happened with a popular investment app recently so that you make an informed decision.
If you still feel comfortable using these apps, after you’ve done your due diligence, there are some that keep coming up as the most popular ones to consider.
Online trading platforms
Robinhood has had a lot of controversy lately, but they’re still popular. Their mission is to offer commission-free investing, plus the tools you need to grow your money. When you sign up, you’ll get your first stock for free. Certain limitations and fees may apply, so be sure to read the fine print.
Firstrade is a discount broker that provides self-directed investors with brokerage services. They’ve been around since 1985, and offer commission-free trades with no Minimum. If longevity is important to you, this app might be a good fit.
M1 Finance is headquartered here in Chicago, and offers users a combination platform. If you enroll, you can combine investing, borrowing, and cash management in one easy-to-use automated place, managing your money as you see fit.
WeBull offers a suite of research tools for all types of traders. No initial deposit is required, and they don’t take commissions. They also offer unlimited day trades and extended hours trading.
Ally Invest offers much of the same as their competitors. That said, they are running an extended promotion in which they are offering cash bonuses based on the amount of funds you deposit. All tiered based.
TD Ameritrade has merged with Schwab to become one online trading platform. They aim to deliver a best-in-class experience for self-directed investors and traders in a self-contained, all-in-one app.
Full service, individual, human broker
While the DIY option might work for some, you might prefer an actual human broker with whom you can develop a relationship over time. While the associated fees are higher, the advantages are such that you can get personalized help and advice from an expert professional who learns about your goals, preferences, and investment style. You’ll get the assistance you need to make your investment decisions, from a real, live person.
If you like this option, then just as you would with any other professional that you hire, do your due diligence. Brokers must be registered with the Financial Industry Regulatory Authority, or FINRA. You can research the history of both individual brokers and brokerage firms on their site. You can look up credentials, operations information, employment data, and their experience in the cannabis industry, which you will obviously want to know, in this case.
8. Best practices for investing in pot stocks
We’re going to assume that at this point you’ve done your research, you read the trades, and you’ve selected the method in which you want to do your investing. Here’s a few other rules of thumb to keep in mind:
Buy low and sell high
You’ve probably heard this one forever, right? Well, that’s because it’s an old tried and true rule. Ideally, you always want to purchase stocks when the only direction in which they’re going is up. So, either through your DIY methods or via a broker, you want to find those stocks and companies that have the most growth potential. Avoid the temptation to buy into something in which its value has already peaked. Now, you can never guarantee which way things are going to go, of course, but buying low is always a good rule to keep in mind.
Hold for the long term
Another adage you’ve heard forever, right? That’s because this one is also a great rule to keep in mind, especially if you’re new to cannabis investing. Really, the market is so young and volatile right now, that anything you buy is going to experience fluctuations for the foreseeable future. Weed is an emerging industry. Think Amazon stock in the late 90s and early 2000s, as opposed to where it is today. Remember? Do not expect to make tons overnight, and you won’t lose tons, either.
Diversify, diversify, diversify
We’re going to assume that if you’re investing, you’re going to also make investments outside of the weed industry so as to balance out your overall portfolio. Hopefully some of those investments will be in very established, stable, conservative sectors. Regardless, even within cannabis, you should still diversify. What does that mean? Perhaps you’ll buy stock in a MSO, balanced with some SSO, with some Canadian LP mixed in. You get the picture. Even the best analysts get things wrong, so don’t make the mistake of putting all of your investments in one single place.
Never invest more than you can afford to lose
This is another golden rule worth repeating. We’ve all seen a number of stories in the news, lately, about inexperienced retail investors following some pump and dump stock trend. They’ve put everything they have into it… and then lose everything they have. We’ve even heard a few stories about retail investors taking out loans with which to make these investments. They’ve wound up with nothing, plus having to now pay back the loan. Please don’t let this be you. Don’t ever, ever invest more than you can afford to lose. You simply never know what can happen, so don’t take that risk.
9. Where to start with investment choices
When investing in pot, you basically have two choices to choose from. Whichever you choose will ultimately come down to your personal comfort level and financial goals.
One option is to invest in individual stocks. That’s not your only option, but definitely a simple place to get started. One company, one set of criteria to review. As long as you’re not all or nothing, this is a perfectly fine way to go.
But you have another selection to choose from, one that may help you diversify smartly, while providing you the chance to invest in a number of up and coming companies at one time. What’s an ETF? We can go back to Investopedia for the reliable definition, but in short, its this: An Exchange Traded Fund (ETF) involves a collection of investments, such as stock, that can easily be bought and sold as a group. This can also be a great way to invest in stocks that you might not be able to, on an individual basis.
10. So, are you going to tell us which pot stocks to invest in, or not?
Look, we’re not a broker, nor are we an advisor, or even a research firm. So we don’t want to tell you what to do. We want to tell you how to figure it out for yourself in the best way. But that said, what we can tell you, is who some of the hottest players are right now, and where investors seem to be putting their money. Whether or not you want to pursue these investments on your own, is strictly up to you. We are neither recommending (or not recommending) any given stock, or company. This is all purely informational, and it’s not a complete list. So just keep that in mind.
Now with that said, here’s who the main players are.
The Big 4 in weed
These are the 4 biggest companies in cannabis today, ones who have emerged from the pack to become dominant, huge companies. Each of them has the potential to eventually become the Anheuser Busch of weed, a market development that will eventually happen over the long term.
These companies are all MSOs, with the great fundamentals we discussed earlier: Good management, stable, solid finances, and promising growth potential:
Cresco Labs ($CRLBF) – Vertically integrated cannabis company based here in Chicago, Illinois, with current retail operations, including Mindy’s Edibles, in several states in which marijuana has been legalized.
Curaleaf ($CURLF) – Engages in the production and distribution of cannabis products across North America, operating dispensaries in 23 states.
Green Thumb Industries ($GTBIF) – National cannabis consumer packaged goods company and retailer that manufactures and distributes a portfolio of branded cannabis products including Rythm, Dogwalkers, The Feel Collection, and Beboe, among others.
Trulieve ($TCNNF) – The first and leading medical cannabis company in the state of Florida, the company seed-to-sale operation has 66 stores in Florida, and 71 nationwide.
The Next 3
This group is the next set of up and coming MSOs. TPCO is an interesting one, as it’s the company in which the rapper Jay-Z is involved:
TerrAscend ($TRSSF) – Active in the medical and legal adult use market across Canada and in several US states in which cannabis has been legalized for therapeutic or adult use. TerrAscend was the first cannabis company with sales in the US, Canada, and Europe.
TPCO ($GRAMF) – TPCO is a vertically integrated cannabis operator in California. Operations include 7 manufacturing facilities producing all major cannabis product forms, and 5 distribution plants. Considered to be the most capitalized cannabis company in the U.S. today.
Verano ($VRNOF) – operating in 14 markets, with 8 cultivation facilities and 54 operational retail locations.
Popular cannabis ETFs
As we indicated earlier, ETFs are a common option that investors consider. The biggest benefit is that ETFs allow you to invest in a number of stocks or other investments at one time, as a collective:
AdvisorShares Pure US Cannabis ($MSOS) – Unique in that it only has U.S. cannabis companies as part of its portfolio, and the only US listed weed ETF available to date. This ETF is popular because it can be the only way for retail investors to currently invest in US cannabis, and it contains all of the above U.S. companies we mentioned.
Amplify Seymour Cannabis ($CNBS) – CNBS invests at least 80% of its assets in securities of companies that derive 50% or more of their revenue from the cannabis and hemp ecosystem.
ETFMG Alternative Harvest ($MJ) – Tracking the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem beneﬁtting from global medicinal and recreational cannabis legalization initiatives.
Horizons Marijuana Life Sciences Index ($HMMJ) – Fund incorporated in Canada. The fund tracks the North American Medical Marijuana Index.
11. Any up and coming pot stocks to keep an eye on?
When you do your research, you’ll find a lot of consensus that the below are strong up and comers. These are popular with retail investors who are looking to get in on the ground floor. Many analysts believe that the below show a lot of promise and potential over the long term:
Sundial Growers ($SNDL) – Canadian world-class growing facilities with experienced growers, researchers, specialists and more, all experts in the art and science of growing cannabis.
Tilray ($TLRY) – Global pioneer in the research, cultivation, production and distribution of medical cannabis and cannabinoids. Currently serves tens of thousands of patients, physicians, pharmacies, governments, hospitals, and researchers in eight countries spanning four continents.
AdvisorShares Pure Cannabis ETF ($YOLO) – ETF with cannabis companies primarily in the U.S. and Canada engaging in legal businesses that span different industries, including those specializing in consumer products.
Scotts Miracle-Gro ($SMG) – Yep, Scotts Miracle-Gro is hugely popular with weed growers, and now considered to be a legit pot stock. As a result, the company has seen enormous growth, and the stock has responded accordingly. In addition, they manufacture and sell consumer lawn, garden and pest control products.
Aurora Cannabis ($ACB) – Canadian leading integrated cannabis company with a robust network of subsidiaries and strategic partnerships. State-of-the-art production facilities and exclusive sales agreements in the European Union and beyond.
12. So how long do you hold on to pot stocks before selling?
If you’re going to go high risk, which is what most of what cannabis investment is at this point, it’s wise if you plan to hold on to your investment for the long term. While it can be tempting to buy into stock with aggressive forecasted returns, and the intention of flipping it quickly, you can quickly incur some serious losses. This is especially true if you’re new to investing, and you’re investing a sizeable amount of your portfolio in weed. In the spirit of never investing more than you can afford to lose, and if you’re looking for something to sell off more quickly, you’re better off with a more conservative type of investment.
13. Wrap up
Again, if you’re brand new to all of this, we hope that we’ve provided you with a good outline to get you started. And to those of you who have been at it for a while, we hope you’ve picked up a couple of good tips or resources. That’s our goal. Some last pointers:
The one big takeaway we want to you to have is that no one has all the answers here. If you’re going to play the stock market, especially in weed, you need to constantly stay informed and become your own best expert. Keep up with the latest news, trade journals, and emerging trends.
Disagreement is good
Just like with anything else, it’s healthy to listen to experts who disagree with each other, or with you. Get a variety of opinions so that you cross reference and get a full picture of what’s going on with any particular stock. You’ll make better decisions, when you hear all sides.
And if you do everything right, but still lose…
Hey, don’t feel bad. You can do everything right, make all the right decisions, and bet on a stock that loses out. And you lose money. That’s ok. Everyone experiences that sooner or later, even gurus like Mark Cuban. The important things to remember are to never invest more than you can afford to lose, and to stay in it for the long haul. If you keep all of the best practices we’ve outlined in mind, you should do well investing in pot stocks. This industry is truly presenting us with a once in a lifetime opportunity, so be patient, as its future will remain bright.