8 Steps to Help You Learn How to Invest in Cannabis Stocks

Soft Secrets
05 Feb 2021

Without definite legislation, volatility is a common feature of cannabis stocks. The risks are greater compared to other stocks, but so are the rewards for those who master the game.

The stock market offers endless opportunities to multiply your money. People trust their money into companies that can grow their revenue, given they've found a company that suits their taste and preference. If you are on this page on the internet, let’s assume you’re looking for ways on how to invest in cannabis companies or cannabis stocks. 

The cannabis sector, rapidly expanding and currently one of the fastest-growing industries globally, is abundant with companies that may be worth your financial investment.  The backbone for such security is the expanding legalization of cannabis for both medical and recreational use. 

In the U.S. alone, presently, there are 36 states, along with the District of Columbia, Guam, Puerto Rico, and the Virgin Islands, that run a comprehensive, publicly available medical cannabis program. More than that, 15 states and three territories have also legalized cannabis for adult use. 

Outside the U.S., Canada is the world’s biggest cannabis market, where cannabis is also legal for both recreational and medical purposes. Should Mexico votes any time soon to legalize cannabis, it will take Canada's place as the world's biggest cannabis market. The point is, cannabis is a hot-boiling topic on the North American continent, although everywhere in the world it's getting more and more interesting. Thailand broke Asian taboos and advanced medical cannabis legalization as well.

Australia now sells CBD oil over the counter without a doctor's prescription. Spain, Uruguay, South Africa, and a string of other countries also have some form of advanced law regulating cannabis, which is good for business. What about the current pandemic? It only seems to have enhanced the status of cannabis.

Cannabis goods sales, perceived as essential, skyrocketed in the first half of 2020 when the pandemic began to swipe the U.S., with businesses quickly adapting to improve their online and delivery infrastructures.  Not every cannabis-related company came out a winner on the stock market, however. Some do the business well, they grow, buy assets, invest timely and wisely, and some make risk moves that sometimes pay off but not always. Or their actions are not viable in the long-term. 

Here you can check out some of the most exciting cannabis stocks to invest in 2021, but note that nothing is set in stone. It pays to follow weekly or monthly those cannabis stocks you wish to invest in before rushing with decisions. To turn yourself into an observer and become aware of various aspects, risks, and dangers existing in the volatile but exciting cannabis market. 

Below is a list of things you can actually do to hone your knowledge on the cannabis stocks market and become an investor in it.

8 Learning Steps: How to Invest in Cannabis Stocks?

From knowing the different types of pot stocks to learning the different kinds of cannabis products, this is essential information you need to collect and be aware of before proceeding with any investment plans.

1. Know the different types of cannabis stocks

There are many different cannabis companies out there. But if you want to know the three general categories, there are divided as follows: 

  • Cannabis growers and retailers: These companies, which for instance include Canada’s leading cannabis producer, Canopy Growth, they cultivate cannabis, most usually in closed facilities and greenhouses packed with a heavy smell of pot and a lot of lights. They harvest their crops and distribute them to dispensaries, which can be part of their business, or the dispensary can be a third-person business that merely supplies products from them. Depending on the company focus and the territory where they are present, these companies can focus solely on medical marijuana or focus both on medical and recreational products. Some of them simply produce flowers, or they extend their manufacturing to include edibles and other cannabis-infused goods.
  • Companies that support cannabis producers: Those are the companies that do not necessarily cultivate the plant but provide cultivators with essential infrastructures such as equipment, space, technology, or other supplementary services. For instance, San Diego-based Innovative Industrial Properties, a prominently profitable pot stock, is focused on real estate investment. It acquires medical cannabis cultivation assets and leases them to producers long-term, making fortunes from its rental income.
  • Cannabis-focused biotechs: Those are big companies that manufacture cannabis-based drugs. An example is GW Pharmaceuticals, the British giant known for its MS treatment product Nabiximols, which treats muscle spasticity in MS patients. Biotechs can also develop drugs for animals, such as CannPal Animal Therapeutics Limited. 

2. Understand all the different types of cannabis products

If you are into cannabis and have smoked or enjoyed other cannabis goodies before, you already have some sense of the hot offers du jour. If you are a novice in the cannabis sphere and are here just for the business, you have homework to do.

The industry is long past the point where cannabis consumption is seen as the stereotyped rolling paper joints and hit from the bongs. There are so many products now out there that trends are changing in the blink of the eye.

Old methods to consume cannabis, such as cannabis tinctures, are witnessing their sort of renaissance. Newer ways such as vaping and e-pens aren't going to stop being popular any time soon. And breakthrough products like THC syrups are all the rage every once in a while.

Having that said, cannabis consumers now have more product diversity to choose from than at any other point in the past. If one general classification of how to divide all these different cannabis products, it's under medical and recreational.

The medical market might currently seem more significant because medical weed is legal in more states and territories. Regardless of that, the recreational product's market is vast and may well challenge other big players, behemoths like firmly-established tobacco producers. As an intermediate, some products are reliable options for both groups of medical and recreational users.

3. Diversify your research

You can look for the cannabis stock you want to invest in based on their type of service or by choosing who manufactures what product, but also, you want to get country-specific, exchange-specific, and sector-specific. 


Depending on where you come from, you can look for U.S.- focused stocks, Canada-focused stocks, U.K.-focused stocks, Germany-focused stocks, Australia-focused stocks, Israel-focused stocks, and so forth. These countries are some of the most prominent industry players.

For instance, if you look at the Australia-focused cannabis stocks, it doesn’t mean that all listed companies are based there. Australia-focused cannabis stocks would include cannabis stocks that are exporting their goods to the Commonwealth and Australia, so for this category, well worth checking are also Canadian stocks. 


The primary stock exchange you want to check and follow is the NASDAQ, the abbreviation of which stands for National Association of Securities Dealers Automated Quotations. The NASDAQ emerged as the global electronic marketplace for trading securities, and its focus has rested on Silicon Valley tech giants. It has also homed some of the world’s largest cannabis stocks in recent years, including Canadian licensed manufacturers, cannabis-focused ETFs, and international conglomerates.

Beyond NASDAQ, there are other exchanges to look at, such as the NYSE (the New York Stock Exchange) or Canada’s brand new NEO Exchange. In Europe, The Frankfurt Stock Exchange is one of the biggest, offering European investors access to cannabis-focused companies not only in Europe but also in the Americas and beyond. 


Earlier, we mentioned that cannabis growers and producers, accompanying service suppliers, and cannabis-focused biotechs make up the three main categories of cannabis-related stocks. Also, we drilled into all the different types of cannabis products out there.

Having said that, you can further filter cannabis stocks, therefore discover that cannabis stocks also function as ancillary stocks, ag-tech stocks, biotech stocks, CBD stocks, edible stocks, tech stocks, or tobacco stocks, to name just some of them.

There are tons of these stocks nowadays, traded big times on the NASDAQ and other exchanges. The CBD stock market for instance has been one of the most exciting lately as the non-psychoactive cannabis compound that gives the name here has caught the attention of companies that range from big pharma to big tobacco to brand builders.

The CBD stock market is becoming bigger and bigger by the day and won’t stop growing anytime soon because the legalization of medical cannabis proceeds at a satisfactory pace. Cannabis competitor stocks such as big tobacco giants are also game.

Tobacco companies are most ripe for disruption because cannabis and cannabinoids are perceived as big competition for tobacco and nicotine. At the same time, they are in a unique setting, being some of the best-positioned companies globally, with massive accumulation of wealth, enough to reinvent, invest, and assume control of the cannabis industry. Having said that, there are so many ways to look at cannabis stocks, to approach and get engaged. 

4. Do a risk analysis

Investing by default means taking a risk. It may work, but it may not. If it works, it can be highly rewarding; if it doesn’t, you lose your hard-earned money. Investing in cannabis stocks comes with a specific set of risks. 

Legality risk

The legal risk is also political. In the U.S., selling cannabis remains illegal on the federal level, and it’s enduring friction to state laws where weed has been made legal. Until the U.S. does not get over with federal legalization, this will always cast uncertainty on businesses. Legalization impacts firms because they lack access to essential financial services that any other regular business can access. It’s especially tricky for new and emerging companies.

Proper legislation will help eliminate some economic insecurity, although it will likely cause the price of cannabis goods to drop and automatically ramp up competitiveness. It’s a political issue because not all major political parties in the U.S. look at cannabis legalization with zest, with the most extreme of lawmakers even keenly looking forward to adopting a constitutional ban to prevent cannabis legalization from taking place in their state. Although this is rare, it’s reality. 

Performance risk

Beyond factors such as laws and politics, there’s always the risk of how the company will perform business operations. Situations have shown that even the stock’s most prominent players can sometimes falter to balance supply and demand and overestimate their growth.  For instance, Canada-based Aurora Cannabis has been one of the most lauded players for years in the cannabis industry.

The company took on a trend triggered by Canada’s legalization of recreational use of cannabis, where everyone began to acquire assets and overspend on expansion. It eventually led Aurora to a situation where it started producing more weed than it could sell, which negatively affected its standing on the stock, including share prices. For this and similar reasons, Aurora Cannabis has nerved investors, posing the question of whether to invest in them was worthwhile or not.

Financial risks

A fraction of cannabis companies are profitless and exist on the verge of running out of cash. What they do often results in diluting the value of their shares after raising capital and issuing new shares that do not necessarily resolve their financial struggles long-term.

Over-the-counter (OTC) stocks risks 

OTC stocks refer to how securities are traded for companies not listed on a formal exchange. When securities are traded over-the-counter, they go through a dealer network instead of a centralized exchange. Cannabis companies with OTC shares raise capital through the stock sale. But since this is the OTC stocks, they don't have to file regular financial statements, which are critical to run risks analysis. With OTC stocks, there's always the risk of low liquidity or how easily stocks can be bought or sold without the price to be affected.

5. Analyze the cannabis stock you want to invest in

When considering any pot stock for investment, there are several aspects of the company you want to do a routine check and look for the answer to the following questions:  

  • Who’s the team that navigates the company at the moment? Is the current CEO doing better than the last one?
  • What’s the company growth strategy and competitive position? Did it struggle recently in the past? Does it keep a steady pace for a while now?
  • How’s the company doing finance-wise? 
  • How many warrants and convertible securities they have issued?
  • If they are a cannabis producer, what are their costs of producing cannabis?

Some general indicators that a company is performing well are that its warrants and convertible securities are not too high, which lowers the risk the stock will become diluted in the future. Also, if they have lower costs for production, it may mean they are more competitive.

6. Intensely observe how the cannabis stocks are performing

As you move on to review the top-performing cannabis stocks for the month, shift your focus on their market cap. If you are looking for high performers, you probably want to look at those with at least a $200 million market cap. But there is really no limit to where to look at here.

Just spend some time observing both big players and smaller players and dig in more information about what they do and how they're doing in general. Some obsessing over how cannabis stocks are performing could be quite useful for getting the pulp of cannabis stocks, which is often changeable and tricky, therefore not the best fit for traditional investments.

7. Litmus paper with small investments

When you finally go for it, don’t jump all in. Begin by making a small investment and see how it goes. Add more shares when you see that the cannabis stock you invested in has increased their revenue and earnings. It’s also good to start with safer choices, so making a list of companies that look safer and those that don’t might help figure out your bids.

A stock that does not directly work with cannabis products but is involved in supplying assets and services to cannabis manufacturers does sound like a safer choice and proper fit for new investors into the cannabis stock zone and those who want to avoid risky deals.

8. Avidly follow industry insights and developments

As you follow how the cannabis stock you invest in performs, observe how the industry functions and don't miss the latest developments. There's always something going on. To this end, reevaluate your investing criteria every couple of months or even more often than that, frequently check how the pot stocks are performing, and tap into industry insights when there are updates about legalization and market projections on both sides of the pond. The cannabis industry is relatively young, and therefore hot-boiling, so it’s still shaping and establishing itself.

It's moving in the right direction, but the process is volatile, with numerous risks if you do not pay attention. That also means that you shouldn't anticipate wealth distribution from investments in it will play out as in other more traditional stock markets. Hopefully, the steps presented here will help you sharpen your navigation skills into cannabis stock investments if you are up for this kind of adventure.

Soft Secrets