Investors have different financial goals and risk tolerances. Conservative investors probably won’t be tempted by most cannabis stocks because of their high-risk levels and volatility. However, aggressive investors might be comfortable buying some cannabis stocks. There are a few important notes anyone interested in the industry should know before investing in cannabis companies.
To understand the risks associated with cannabis stocks, it’s important to first know the details about cannabis and the cannabis industry. These tips for cannabis investing will help you stay ahead of the market.
Cannabis investing can create a lot of profit
You may have heard of entrepreneurs or investors who have made lots of money from the cannabis industry.
Investors may believe that legalizing cannabis for recreational purposes will lead to increased consumption of this product and create profitable investment opportunities.
However, the cannabis industry is new and could change considerably in the coming years. It is therefore not certain that all companies operating in this sector will be profitable. Some will do well, whilst others will shut down.
The risks of cannabis investing
Cannabis-related companies that solicit investors to finance their activities grow cannabis or develop services, products, and technologies in support of the industry.
Examples include irrigation, ventilation and lighting systems, product packaging, and smokers’ items.
New companies could enter the cannabis market and compete with existing companies. Increased competition could reduce the profits of the cannabis company in which you are considering investing.
In addition, a black market that offers lower prices to cannabis users could affect the profitability of legitimate companies that grow cannabis.
Moreover, the sale of cannabis for recreational purposes is restricted and may be regulated differently from one place to another. The need to comply with these rules may slow the growth of some companies.
Cannabis use remains illegal in several countries, which may also limit the growth of companies in the legal cannabis sector.
Do your research before you start cannabis investing
Investing in the cannabis industry needs time and energy. Unlike sectors where companies have been established for a long time, the cannabis industry shares little financial information and has little historical data.
Before investing in a company in the cannabis industry, research is needed:
- Learn more about the cannabis industry
- Read the prospectus or offering memorandum that provides information about the company, its management, its activities and the risks that could affect its profitability
- Take the time to understand the company’s business plan, how its revenues will be generated and how long it will take for the company to be profitable
- Make sure that the company that wishes to sell cannabis for recreational purposes has an agreement with the Quebec Cannabis Society or other organizations in another Canadian province mandated to sell cannabis at the retail level
- Will the company need to obtain more financing to build or improve its facilities? Will it issue other securities? If so, the value of your investment may decline
Cannabis stocks with the most potential
Here are the cannabis stocks with the highest revenue growth for the most recent quarter.
Rising sales show that a company’s business is growing and is generating more money than it can use to cover costs, and reinvest in the business:
- Valens GroWorks Corp. is a Canadian biotechnology company that specializes in cannabis processing and formulation, including analytical testing
- Harvest Health & Recreation Inc. is a medical cannabis company specializing in cultivation, dispensaries, and production facilities
- GW Pharmaceuticals Plc. is a biopharmaceutical company headquartered in the United Kingdom. The company discovers, develops, and commercializes novel therapeutics, including cannabinoid prescription medicines for the treatment of cancer pain, Multiple Sclerosis, and neuropathic pain
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