With the number of U.S. States legalizing marijuana in some form or another, it is no wonder that there is a growing interest in marijuana stocks. Even investors who aren’t interested in marijuana itself are seeing massive opportunities. A stock market boom is coming!

As with anything new and exciting, there are plenty of misinformation floating around. To help you better understand the marijuana stock game, here are 3 of the biggest misunderstood facts.

1. The legalization and increased acceptance of marijuana across the country is not the sole reason that these stocks are growing.

Yes, the more countries, states, and territories that decriminalize marijuana, the more likely it will be to make money investing in marijuana. At the same time, however, this is not the only driving factor.

Example: Aurora Cannabis
In 2016, Aurora Cannabis’ stock grew by 400%. Some would argue that Canada’s acceptance of marijuana was the driving force behind Aurora Cannabis’ success. It is also noteworthy that Aurora Cannabis took major steps to reach out to patience while developing its infrastructure to keep up with demand. Aurora Cannabis played it smart and was able to grow.

Increased acceptance will certainly help the marijuana stock market grow, but it’s also important to support companies that are making good business decisions to keep up with this growth.

2. Not all marijuana stocks are growing.

It’s easy to get caught up in the excitement as these stocks continue to gain momentum. There are certainly some stocks that have performed extremely well, but just like any stock, there are risks.

Example: Insys Therapeutics
Insys is known for having won the first regulatory approval for a cannabinoid drug. Their stock nearly doubled in 2015, enough to make any investor want to jump on board. In 2017, however, declined sales of another part of Insys’s offering resulted in a loss of two-thirds of its value.

Just like any company in the stock market, we have to be careful in assuming that its part in the stock market will be enough to show an overall profit. There will always be a risk.

3. Not all marijuana stocks are full of risks.

While there is always a risk when dealing with the stock market, there are options that aren’t quite as risky. Companies like Aurora Cannabis have solid business models that are easier to support than other companies in the market.

How Can You Reduce the Risk?
Taking the correct steps to research and vet companies before purchasing stock is always a wise way to reduce risk.

  • Look at the company’s management team, executive track records, and the company’s strategy for growth.
  • Make sure to pay attention to what other products or areas the company is involved in.

As with Insys, non-marijuana stocks can hurt the company, even if marijuana products do well. Conversely, a company with a strong portfolio can help ensure growth as they learn and traverse the marijuana landscape.

Ultimately, it is up to you to know with whom you are getting involved. Investors would be best to not believe everything they hear, but to do their research to make sound decisions.

What has been the biggest thing you’ve learned or changed your mind about in regards to marijuana stocks?