When Canada changed the laws and began allowing recreational use of marijuana during the fall of 2018, it opened the eyes and wallets of many investors. For the first time, a North American country created a tremendous and legal opportunity to invest in marijuana stocks. Investors started to look at marijuana as a viable stock option. As more U.S. States allow either medical and/or recreational marijuana sales, it makes the stock market even more appealing.
Because the marijuana sector is still new and in somewhat uncharted territory, it is best to be wise about how you approach investing in the marijuana industry. Here are 3 horrible mistakes you should avoid when investing in the marijuana stock market.
1. Paying too much attention to the short-term.
It is perfectly natural to want to make adjustments to your investments when there are fluctuations. In many cases, this can earn money or reduce losses. The cannabis industry is in its infant stages.
Keeping up with growth requires lots of capital: building up production, expanding facilities, and strengthening distribution channels cost money and are necessary. With some of the current regulations still being somewhat tight, it can make operations more difficult than in other industries.
Share prices for marijuana stocks are mostly based on the prospect of a company becoming a large player in the market. A little victory in the court or a positive piece of press can raise share prices a great deal, while negative news can lead to large plunges. Make sure to have a long-term plan; you are an investor, not a speculator.
2. Only investing in marijuana products.
When we think of the marijuana industry, we most likely consider the actual product that gets used by customers. This might be the easiest place to set our sights when deciding to invest in marijuana stocks. The reality is that there are other areas of this segment that should also get attention.
Some would argue that the wise choice is investing in real estate. The real estate companies that are part of the marijuana industry don’t actually touch the plant. This means they have fewer risks and red tape to deal with as compared to producers. Marijuana is still illegal at the federal level. This allows landlords and real estate companies to charge much higher rates for companies wanting to grow or use marijuana in production.
Investors might also consider companies who create the technology or devices meant to use marijuana. This could be anything from companies developing new medicines using marijuana to companies creating pipes for marijuana usage.
3. Believing that all marijuana stocks are going to be hot.
With all of the excitement around the marijuana stock market and legalization in the U.S., it would be easy to expect any company in the marijuana industry to be a fast ticket to a payday. There are certainly some big companies taking advantage of this excitement and making big moves and big profits for investors.
Just like anything in the stock market, investors need to do their research and make prudent decisions. Make sure to choose companies based on their leadership teams’ track records, business plans for growth, and involvement with non-marijuana products. This will help you pick winning companies over dishonest organizations hoping to make a quick buck.
Have you made any mistakes investing? Please share your stories and tips in the comments.