Is Investing in Cannabis Smart?

Stephen Andrews
21 Mar 2023

Cannabis stocks have seen a decline in recent months, therefore many people wonder if it's smart to invest in Cannabis right now. One of the reasons for the latest downtrend is that there is little enthusiasm that federal legalization will happen anytime soon. But despite the losses, if you look at the gains the cannabis market has made over the last ten years, all of it indicates massive growth. And this is something that should give stimulus to any investor.

Cannabis investments have become increasingly popular over the last decade. When you look at the financial news, it may not always be rainbows and sunshine. Still, you can often get the picture that investing in cannabis stocks is worthwhile and paying. 

Why It's Smart to Invest in Cannabis? 

Investing in cannabis is putting your money in an exciting and evolving market where there's lot to gain. 

Market Steadiness and Growth 

Legal states are continually improving their market regulations in a bid to offer more equal opportunities for all market participants, to improve the licensing process, or to subdue the illegal trade of drugs. On the other hand, business is constantly expanding and cities and jurisdictions that previously did not permit cannabis companies to work within their territory, are now changing their mind. Such efforts in legislative improvements and business expansion are the marks of a steadily growing market where a lot has already been invested and where there are many great expectations for what could happen in the future. 

Learning from Mistakes

More states are going legal, which is good for business and the overall acceptance of Cannabis. But more importantly, those states that are going legal now are trying to address all nooks and crannies that early states like Colorado or California were missing out on in their legislature. The new legal states have more insights on what works and what doesn't on the field. For example, they approach licensing with new criteria. They give an advantage to small farmers and offer various support to communities disproportionately affected by old drugs law. Various aspects of the law are considered to make the best and most acceptable legislation possible for all. 

Legal Developments

Promises for federal legalization were not delivered in the first two years of President Biden's term in office. Still, there have been some significant legal movements playing out at the federal level. Biden called for reform last October, which might mean, among other things, de-scheduling or rescheduling cannabis from the list of controlled substances. This could certainly open up many opportunities for Cannabis. Removal from the list of controlled substances may attract interest among pharmaceutical companies and big investors from that and other industries.

In addition, there's ongoing work on banking reform. When it goes active, a banking bill would provide safety for banks to work with cannabis businesses. And it will give comfort to many investors who have previously been hesitant to get involved with Cannabis because of the lack of financial services available to the sector.

is investing in cannabis smart

How to Make Smart Investments in Cannabis? 

A few more ideas and perspectives on how to approach with investments in the cannabis sector. 

Investments in Smaller Companies

Investing in top industry players like Curaleaf, Green Thumb, or Cresco might be expensive. But Cannabis is not all about first-tier, most famous industry names and brands. There's much more. One smart way to invest in cannabis is to focus on companies that are not that popular but still generate decent and stable profits. Investments in this "second" tier of companies can also be much cheaper. 

Other benefits of smaller companies are that they can be much more adaptable to changes and flexible to market disturbances. Or they could be acquired by larger operators, which is usually a gain for investors. Legalization could also be beneficial for these companies. 

Investments in Ancillary Stocks

Sometimes when you are unsure whether to invest in cannabis producers or sellers, opting for ancillary companies might prove a brilliant move. Ancillary companies are super important because they provide critical services to cannabis operators so that they can work and function normally. Ancillary companies can include tech companies that provide grow equipment, packaging companies, companies that lease land or other horticulture equipment, etc. There's always demand for services like that, and their stock value rarely fluctuates. 

Monitoring the Industry for Changes

Whatever you do, it's important to stay up to date with industry news. Cannabis is a growth industry. But as a younger market, it's sometimes more challenging to predict how things may turn out. A new regulation might mean boost in the stock value. At other times, it could have devastating consequences. Or there are other legitimate questions to ask. For example, what would happen if/when Cannabis is descheduled or rescheduled, perhaps already this year or next year? Would that also mean that the feds will step in to regulate the industry? How will that affect the market? 

There are many big unknowns like that when it comes to Cannabis. Perhaps more so than other sectors. Following important developments in the industry can provide for valuable insights and help investment decisions. Good market knowledge also brings a better sense when to react and how to avoid difficult situations or making wrong investment decisions. 

Stephen Andrews