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Whether or not you happen to be a cannabis consumer, it's impossible to deny that the marijuana industry has been on a tear.
It has become pretty clear to the investment community that cannabis may be the next gold rush. Many have even dubbed this phenomenon "the green rush."
Last year, the legal cannabis industry saw billions of dollars in revenues roll in...and it's still just the beginning.
With so many states and countries joining the legalization train, the reform of cannabis laws is obviously what the people want! Now that the industry has gained so much momentum, so have the companies operating in the space.
Are you an investment pro? If you consider yourself to be a real Wall Street warrior, this article may be too basic for you. If you're a beginner to the investing world, then keep reading...
To be totally clear, it's not likely that $10 invested today will become $420 tomorrow. What is far more likely, if not inevitable, is that growth for many cannabis companies will outpace the growth seen in traditional industries such as those included in the S&P 500 (airlines, mining, etc.).
This brings us to the questions that many prospective cannabis investors are asking: "How do I profit off of the booming marijuana industry? And, how do I do it in a smart and safe way?"
The goal of this guide is to help prime you on how to invest in marijuana stocks riding the green rush without going back to school for a degree in financial securities analysis.
First things first.
When you buy stocks, also known as equities, you're actually buying a fraction of the company. Surely, firms like Tao Capital Partners are buying stakes of private cannabis companies. For the average investor however, publicly listed cannabis companies are the place to look for a piece of the action.
Just like if you wanted to buy shares of Coca-Cola (NYSE:KO), you're going to need a brokerage account to begin. Those trying to save money on commissions (the transaction fees to buy or sell) should consider checking out the cannabis companies that are available on the Robinhood app.
Those looking to access smaller companies, or foreign-listed companies such as the licensed cannabis producers in Canada will have to look elsewhere such as Fidelity or Scottrade.
Diversification is key.
In every industry, there will be some companies that are more successful than others. Investing pros like Peter Lynch beat the market for years picking winners back in the day, but if you've made it this far into the article I'm assuming you aren't Peter Lynch.
Unless you're following the cannabis industry's every move, it can be tough to spot out the companies that will rise to the top. Without this level of research and due diligence, investors can easily fall into the trap (picking the losers). This is why diversification is paramount!
If you choose to put 100% of your portfolio into cannabis companies, you better be absolutely certain that it's going to work out. Furthermore, to invest all of your money into one or two specific companies leaves all of your eggs in a very limited basket.
With all of the different types of companies operating in the cannabis space (cultivators, lighting companies, and more...), it's especially prudent to diversify.
In case this sounds really complicated, don't worry. Diversification is actually way easier than you think.
Consider a fund.
Thanks to the new-found attention from Wall Street, there are finally cannabis-focused funds out there that offer investors a basket-style approach to investing.
In April, the first ever marijuana exchange-traded fund ("ETF") launched up in Canada, and is also available to investors here in the United States and beyond.
Horizons' Medical Marijuana Life Sciences ETF (TSX:HMMJ) offers investors access to a basket of quality cannabis companies from across North America.
If index-based ETFs aren't really your thing, check out the marijuana-focused mutual fund called the American Growth Fund Series II (MUTF:AMREX).
As with any fund, be sure to check out the fees associated with it, as high fees can eat into potential gains!
I hope this was a useful intro to investing in the wonderful world of weed. As a quick reminder, this article is purely for informational purposes and is not a recommendation to buy or sell any of the securities mentioned. In fact, I'd highly recommend contacting a financial advisor before diving in, as all investing involves substantial risk.
For more information on investing in marijuana, be sure to check out The Daily Marijuana Observer at www.dailymarijuanaobserver.com.