How to Invest in Pot Stocks
The marijuana industry is one of the most exciting ones around in 2018. Politics, drugs, an emergent industry…they all combine to create one of the most exciting—and potentially profitable—sectors around.
But many people are still left asking how to invest in pot stocks. Today I’ll cover several different plays that you can make in the legal cannabis industry and examine some of the best small-cap marijuana stocks.
How to invest in pot stocks is a fairly open-ended question, so I’m going to tackle two main topics:
- How to invest in pot stocks long-term versus short-term.
- What you need to know about over-the-counter markets vs. bigger stock exchanges, and how they affect small-cap marijuana stocks.
How to Profit From Marijuana Stocks
When it comes to retail investing, you’re more often than not better off being a long-term investor, and that applies to the marijuana industry as well.
Trying to best the algorithms and professionals whose job it is to make second-to-second trades is a tough match-up for Joe Everyman, working a 9-to-5 job and trading stocks in his spare time.
The good thing is that marijuana stocks are poised for long-term success.
The legal marijuana industry is rapidly expanding across the globe. A number of companies have opened operations in far-flung locales, from Australia to Colombia, and a ton of countries in between.
You’ll often hear that marijuana stocks are overvalued, and that’s true—if you look at them from a strictly contemporary perspective.
But if you pull back even a little bit, it’s clear that there is much more potential in pot stocks than what they’re valued at currently.
Look at the gold rush we’re seeing in the cannabis sector on the back of the upcoming Canadian marijuana legalization. And Canada is, for all intents and purposes, a small market. Now imagine if Italy were to do the same. Or the U.K. or Germany. Or the U.S.
While still years away, the worldwide legal cannabis industry is bound to blow up, and betting on the long-term haul could be a great way to invest in pot stocks.
If you’re just wondering how to profit from marijuana stocks, you can take a variety of routes and see success. If you’re wondering how best to profit from marijuana stocks, you might want to play the long game and watch your stocks double, triple, or even quadruple in value over a period of years.
I’ve always been wary of over-the-counter (OTC) markets. The reason is that OTC markets tend not to have the same rigorous vetting process that other, larger stock exchanges have.
As a result, the chances of you dealing with a bad-faith actor on the OTC markets are dramatically higher than on, say, the Toronto Stock Exchange (TSE), where a good number of pot stocks are listed.
That doesn’t mean that all OTC stocks are scams; far from it. It’s just that there are inherently higher risks when playing the OTC market versus other stock exchanges.
When looking at medical marijuana stocks and recreational marijuana stocks on the OTC markets, be sure to do your research.
These micro-cap stocks have huge potential to explode in either direction. They could collapse overnight or see triple-digit gains before you can blink.
Best Small-Cap Marijuana Stocks
Here are two of what I consider to be the best small-cap marijuana stocks.
The first I’d recommend is OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI). With a market cap of about $443.8 million, this stock has had a very successful 2018, or at least it was having a very successful 2018.
Chart courtesy of StockCharts.com
A month ago, OrganiGram stock was up about 35% year-to-date. That has since fallen to about seven percent while the marijuana stock market suffers a pullback. But what I really like about OrganiGram stock is its valuation.
OrganiGram is one of the few companies in the marijuana industry that has a respectable price-to-earning (P/E) ratio
This is a massive advantage. Why? Because, with so many companies being criticized for being overvalued, OrganiGram’s relatively rosy P/E ratio marks it as one of the more undervalued stocks.
OrganiGram is a global player, with a recent expansion into the German market—something I’ve long prized in marijuana companies. (Source: “Organigram Announces First International Expansion Investment,” Cision, May 8, 2018.)
Both characteristics mark the company as a strong player in the market, and I expect to see big things from OrganiGram in the near future.
The other small-cap marijuana stock I’d recommend is the micro-cap stock CO2 GRO Inc (OTCMKTS:BLONF, CVE:GROW).
Chart courtesy of StockCharts.com
This micro-cap penny stock is well situated for potential massive gains, making it one of the more promising—if risky—picks.
CO2 GRO focuses on increasing plant yield through its CO² technologies.
The idea is that the company’s CO² foliar spray helps spur growth in plants. A number of recent studies have shown that the technology works, but further research will likely be needed before we have a bona fide technological breakthrough.
In any case, the company that can grant a competitive edge in cannabis growing is going to be much sought-after as we near the Canadian marijuana legalization date.
Being able to grow more marijuana without having to purchase huge swaths of land or build new facilities will help immensely in terms of out-producing competitors and keeping costs down.
The main drawback is that CO2 GRO is rather small, making it especially vulnerable to swings in the market.
With the cannabis stock market seemingly heading toward a bit of a downturn until hype picks up again over marijuana legalization in Canada, this type of speculative buy might just be what investors need.
The fact that CO2 GRO operates outside of normal conventions helps buyers diversify their portfolios while gaining more exposure to the lucrative marijuana market.
CO2 GRO stock is down on the year about 25%, but—over the past few months—it has roared back to life, gaining more than 40% with the potential to keep going.
There are many ways to skin a cat, and even more ways to play the marijuana stock market.
We’ve just touched the surface on how to invest in pot stocks, but hopefully now you feel empowered, with the proper tools to play what has been one of the most exciting sectors in which to invest.