The best advice I ever got about investing was simple …
Invest in what you know.
I don’t care how many advanced algorithms or how much technical analysis you can access through the porn-filled hard drives of the Wall Street elite, investing in a company without a detailed knowledge of what that company does and the industry in which it operates, is, for lack of a better word, stupid.
Would you buy a car without looking at its specs first?
Would you buy a gallon of milk without checking the expiration date?
Would you buy new music without first listening to a sample?
Funny thing is, most folks spend a lot of time and energy researching all kinds of new purchases before actually shelling out any cash. But when it comes to investing, too many people rely solely on the advice of others without doing an ounce of their own research.
Of course, if you invest in what you know, you’re more likely to make a smart decision because you’re already well-informed. And when it comes to investing, that’s more than half the battle.
Investing in Cannabis
I’ve never been the life of the party. That is, however, until I became an expert on cannabis investing.
Now if I’m at a party, I get more attention than that insanely hot girl who shows up with a bottle of wine and a determination to get back at her boyfriend for cheating on her.
And why not? After all, for a lot of folks, what’s more interesting than making money by investing in something that brings so many people so much joy? And of course, I’m always more than happy to share my thoughts, analysis and investment advice. Although a lot of folks do tend to ask the same question time and time again: How can I start investing in cannabis?
The answer is actually pretty easy. In fact, it’s really no different than investing in any other industry. But for some people, investing in cannabis actually represents their first investment …ever.
It really is amazing how many people get interested in investing once they realize they can invest - and make money - in cannabis stocks.
So for those who are investing in cannabis for the first time (and perhaps this is the first investment you’ve ever made), here are my top 3 rules for investing in cannabis.
1.) Know the Industry
Just because you might smoke weed with your friends at Slayer shows doesn’t mean you really know the industry. After all, most people still buy their cannabis illegally, which means those people really have no clue how the LEGAL cannabis industry works.
So here’s a starter for you …
According to UN data, the global market for illegal drugs is worth more than $300 billion per year, with marijuana monopolizing nearly half of that to the tune of $142 billion. To put that in perspective, the global coffee market — one of the most valuable commodities on the planet — is valued at about $80 billion per year.
Its market value exceeds that of corn and wheat, too. It's actually considered to be the largest cash crop in the United States, enjoying a growth rate of 77% from 2013 to 2014 and an estimated 700% growth rate by 2018.
Bottom line: The marijuana market is one of the most lucrative markets in the world. And today, you can invest in it, legally.
2.) Do your Research
There are a lot of publicly-traded cannabis companies out there. More than half are garbage. And sadly, I’ve watched a lot of investors plow thousands of dollars into random cannabis companies just because those companies were in the “weed business.”
Just because the company has the word “canna” or “green” in it, doesn’t mean it’s a company worthy of your hard-earned cash.
As well, all cannabis companies are different. Some grow the plant, some provide testing equipment, and some provide consulting and marketing services.
Before you invest in cannabis, figure out which aspect of the industry intrigues you most. This will allow you to hone in on only a handful of opportunities that are in line with your interests.
3.) Determine your Risk Tolerance
All investments come with risk. This is just part of the game. But some are riskier than others
In the case of cannabis, the biggest risk tends to come from policy.
In the United States, cannabis is still a schedule one substance, which means the brilliant minds that run our country have determined that cannabis has no medical benefits and is as dangerous as heroin.
However, individual states have given the proverbial middle finger to the Fed and legalized on their own. The result? A huge increase in tax revenues for those states, a decrease in drug-related crimes, and a huge boost in job creation.
Now I don’t foresee the federal government making any major effort to stop cannabis sales in states where it’s now legal. However, some investors don’t want to take that risk.
For these folks, investing in companies that don’t “touch the plant,” make more sense. They may not want to invest in a grow operation, but instead, a company that manufactures testing equipment for the industry. There are plenty of options!
It’s also worth noting that next year, cannabis will likely be completely legal throughout Canada. The legislation is now being written, and it’s virtually a done deal as the new prime minister has made legalization a key part of his agenda.
So if you want to invest in the legal cannabis space, investing in Canadian cannabis companies is a good place to start.
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I’ve been in the finance game for more than twenty years now. I’ve seen my share of booms and busts, and I’ve seen my share of raging bull markets and crushing bear markets. And I can tell you, in all those years, I’ve never seen an opportunity as lucrative as legal cannabis.
We’re talking about a product that needs no advertising.
We’re talking about a product that, despite what happens to the global economy, will always have plenty of buyers.
It really is some of the easiest money I’ve ever made, and I suspect this will continue for many years to come.
The truth is, there are plenty of enticing investments at the moment, but most folks have no idea how to access them.
In public markets, quality legal cannabis stocks are hard to find.
Approved producers in Canada are good bets, as the government has signed off on those companies to grow and sell cannabis today for medical purposes and next year for recreational purposes.
There are about five quality plays there, with more going public this year. The others, including the stocks listed here, can be bought and sold now on the TSX Venture exchange and over the counter in the U.S.
Of course, for a lot of investors, there’s a certain amount of fear associated with investing in stocks that trade over the counter. But what you have to understand about the cannabis industry is that it’s still considered a leper that’s not usually allowed to cross the velvet rope to get into Nasdaq or NYSE parties.
The truth is, as more and more states legalize and the Fed continues to lighten up on prohibition (although this is happening at a snail’s pace), other cannabis and cannabis-related companies will start to list on the Nasdaq and even the NYSE. It’s inevitable.