Trading weed stocks has become insanely popular ever since widespread legalization – and for good reason! Learn all about weed stock market trends here.
The legalization of marijuana in several states has led to a proliferation of companies designed around the selling and cultivation of weed. Savvy investors saw the potential in weed stocks early and snatched up shares, but is investing in weed a good idea in 2019?
You might think that the market is oversaturated, but that couldn’t be further from the truth. As more states legalize both medical recreational weed sales and use, the demand will only grow. States are falling like dominos when it comes to legalizing marijuana and there’s no sign of stopping.
Here are several reasons why investing in marijuana stock is profitable now and for the foreseeable future.
Large Potential for Diversification with Weed Stocks
One of the tenets investing is never put all your eggs in one basket. It’s important to diversify your shares through several companies. This keeps you from losing substantial amounts of money if a single company’s stock drops with little chance of recovery.
In the case of the weed market, this means there are several companies to choose from for stock options. The most common cases are companies that sell weed in dispensaries or grow weed on farms. Several companies now do both, but this is only the tip of the iceberg for stock options.
There are companies that specialize in weed distribution and logistics. Real estate companies that cater to companies looking for land to grow marijuana, storefronts to build dispensaries and more.
You can invest in companies that sell products to help grow and cultivate marijuana from hydroponics to fertilizer. The list goes on and on.
You’ll find no shortage of companies that revolve around the growth and sale of marijuana. Expect that number to grow as more states legalize its use.
Sales Growth Expected for Marijuana Industry
Marijuana legalization started more a decade ago. States began legalizing marijuana for medical use.
Studies on the plant’s ability to reduce pain and decrease anxiety made it a popular holistic choice.
Cannabis strains with low levels of THC, the psychotropic aspect of the plant, allowed people to have the medical benefits without the high commonly associated with it. Investing was limited because of the small scale and the heavy restrictions and red tape surrounding its sale.
When Colorado first legalized recreational use of the plant, investors sprang into action to buy cannabis stock or took a wait and see attitude. Colorado’s weed sales climbed from year to year, leading other states and eventually Canada to legalize its recreational use.
Sales of marijuana both in the USA and Canada are in the billions of dollars. Analysts expect that trend to continue as more states legalize the plant and companies grow to handle the demand.
Illinois recently passed not only the legalization of marijuana but also the sale in retail outlets, not just in dispensaries. This could open up weed sales even more as companies no longer have to limit themselves to dispensaries.
Experts expect about $17 billion in marijuana sales globally in 2019 with that growing to more than $29 billion by 2029. The future of marijuana sales and growth appears bright and now is the perfect time to invest.
Worries of Oversaturation of Marijuana Industry
While everyone is touting the expected sales and profits of marijuana, that doesn’t mean there aren’t worries in the investing community. Marijuana sales growth is off the charts and with that many new companies develop around the industry.
This helps with the diversification of stock options, but it also dilutes the investment pool. One of the biggest worries investors have is oversaturation in the industry. Eventually, some companies’ stocks will devalue because there’s not enough money to go around.
The key to alleviating this fear is taking the time to research the profitability of these companies and make an educated investment decision. There are always companies that fail, no matter the industry, but there are also always companies that succeed and grow.
Be Careful of High Stock Valuation
With the expectation of industry growth, many companies associated with the marijuana industry have an extremely high valuation for their stocks. This worries some investors who see the high valuation as industry hype and it will only devalue from there.
It’s a valid fear as many remember the dot com bubble. High valuation with little profit can lead to a catastrophic crash or at the very least substantial loss in investment.
Once again, research determines what stocks are worthy of such high valuation. Startups with little experience are a much higher risk. Does the CEO have experience in the marijuana industry? Are they just like every other company in their niche or is there something different that makes them stand out from the rest?
These are all valid questions you should ask before buying stock with a high valuation. If the answers don’t satisfy you, then choose a different company.
Should I Worry About Federal Involvement?
While individual states legalized recreational marijuana, it’s still illegal on the federal level. This means if the Drug Enforcement Agency decides to raid dispensaries or weed farms, then it can lead to federal charges.
The likelihood of that happened is extremely low unless the business is doing other things outside the law. The DEA and other federal agencies aren’t concerned about the marijuana trade.
They’re trying to stem the tide of other illegal drugs such as heroin and cocaine.
Also, many states have openly defied the federal government’s meddling in marijuana affairs. They refused to cooperate with investigations.
The likelihood of federal involvement also decreases with each state that legalizes marijuana. Federal agencies don’t have the time or manpower to address marijuana use.
Investors cannot discount the fact that there is a possibility that it may happen. This is why diversification of marijuana stocks is imperative in an investment portfolio.
Marijuana is a Safe Stock for Investment
Weed stocks are a safe investment as long as you take the time to research the companies before buying. It’s an industry with unprecedented growth and its potential for additional growth increases with each state that passes recreational cannabis.
If you want to learn more about cannabis stocks, then please explore our site.