Marijuana stocks are dope, the industry’s growing like a weed — take your pick of jokes. But with marijuana now legal in some form in dozens of U.S. states, many investors are eager to buy into this burgeoning industry.
Marijuana (or cannabis or pot) stocks have been called “the new bitcoin” because of frenzied investor interest and some wild price swings in 2018. Some investors want to get in early, despite the risks, hoping that it’s like buying shares of now-hot companies like Amazon in their early days. But there are practical differences with this industry and some real risks to consider. Here’s what you need to know to buy marijuana stocks.
Why marijuana stocks are unique and risky
A stock’s a stock, right? Definitionally, sure: You’re buying shares of ownership in a publicly traded company. But marijuana stocks carry some additional challenges and risks, including:
- Relatively new industry. Marijuana legalization beyond medicinal purposes began in 2012. As a result, many marijuana stocks are very small, falling into the category of penny stocks, which is a risky arena for investors, especially beginners. Young companies are at higher risk of going out of business, their stocks can experience wide price swings, they may trade less frequently (making it harder to sell when the time comes) and there’s less publicly available research for would-be investors. Finally, with marijuana not yet legal on a federal level, there could be enforcement threats in the future.
- Speculative bet. For all the above reasons, marijuana stocks should be considered speculative investments at this point. Don’t invest more than you can afford to lose.
- Potential scams. Many people are eager to make money in the weed industry, including scam artists. The Securities and Exchange Commission has issued alerts specific to marijuana stocks,