The Smart Way to Invest in Marijuana Stocks

November 3, 2018, By fierceinvestor,
smart investing marijuana

Marijuana may be one of the most controversial opportunities of our time.

However, it’s tough to ignore just how profitable it’s become.

  • Canopy Growth (CGC) ran from $12 to $57
  • Tilray Inc. (TLRY) ran from $30 to $300
  • OrganiGram Holdings (OGRMF) ran from $2.25 to $6
  • Aphria Inc. (APHA) ran from $7 to $17

Granted, many names have pulled back on a sell the news reaction following Canadian legalization.  But there are still sizable catalysts that lay ahead.

U.S. Approval Ratings on the Rise

A growing majority of Americans fully support its legalization, which has led to its decriminalization and the potential for significant cash inflows.  In fact, 66% of Americans now support legalizing marijuana, another new high in Gallup’s trend. The latest figure marks the third consecutive year that support has increased.

Corporate America is Waking up to the Marijuana Opportunity

Constellation Brands just increased its stake in Canopy Growth(CGC) by $4 billion.

That comes just 10 months after Constellation first took a 10% stake in Canopy to help create nonalcoholic cannabis-infused drinks and other products.  Constellation’s investment in Canopy — the biggest deal in the marijuana industry — shows just how far traditional alcoholic beverage companies are willing to go to find growth.

Along with Canadian legalization, we’re looking at a perfect storm of catalysts.

However, to truly succeed in this growth space, you must be smart about it.

For one, be willing to think long-term

Patience is a requirement with this industry.  Many of the sizable returns we’ve already seen from Canopy Growth and Tilray took time.  The industry is still maturing.

Two, Diversify your Holdings

I’m sure you’ve heard this again and again. The best way to reduce risk is by diversifying your portfolio.  One way is to invest in several marijuana stocks in the U.S. and Canada.  Another option is to take a position in marijuana ETFs, such as:

ETFMG Alternative Harvest ETF (MJ)

For example, the ETFMG Alternative Harvest ETF (MJ) offers investors access to the Canadian and global marijuana sector.

The fund tracks an index of stocks across the globe that are engaged in the legal cultivation, production, marketing or distribution of cannabis products for either medical or nonmedical purposes. MJ also holds stocks of companies that trade or produce tobacco or tobacco products, or fertilizers, plant foods, pesticides or growing equipment for cannabis or tobacco. In addition, the fund can hold pharmaceutical companies that produce, market or distribute drug products that use cannabinoids.

MJ has holdings in Canopy Growth, Aurora Cannabis, Cronos Group Inc., GW Pharmaceuticals, and OrganiGram Holdings for example.

Horizons Marijuana Life Sciences Index ETF (HMLSF)

The Horizons Marijuana Life Sciences Index ETF seeks to replicate, to the extent possible, the performance of the North American Marijuana Index, net of expenses. The Index is designed to provide exposure to the performance of a basket of North American publicly listed life sciences companies with significant business activities in the marijuana industry.

Three, consider Alternative investments in Marijuana

Remember, there are pot stocksbeyond the growers.

For example, In addition to lawn and garden care, Scotts Miracle Gro also does business in hydroponics, which is the practice growing plants without soil.

“Pretty quickly we realized that cannabis and hydroponics were a big opportunity,” said Chris Hagedorn, general manager of Hawthorne Gardening Company and the son of Scotts Chief Executive Officer Jim Hagedorn, as quoted by Adage.com. “It has become more acceptable to our investor base, to our board, to our management team and the motivation is obvious: it’s a high-growth category.”

Even Cree Inc.’s (CREE) LED lights are used for indoor lighting options for growers, for example.

Four, never follow the herd 

One of the key reasons that many investors under-perform in the market is because they move in and out of assets at the wrong time.

Oftentimes, an investor sees everyone else making money from rising markets. This is when they tend to throw every spare dollar into their investments. Unfortunately, when that same investor sees a group of other investors selling, that investor sells too.   According to billionaires, like Warren Buffett, they are influenced by the herd mentality, which can be extremely damaging to a trading portfolio.

Five, Have a Stop-Loss in Place

Ideally, in order to protect your portfolio, you have to plan ahead.  Setting a stop-loss means you can protect yourself from a stock that could fall apart. Make a plan, and stick to it.

Success is not always a guarantee.  But if you have a plan in place, you increase your odds significantly.  You see it’s not about having the “perfect” strategy.

It’s about the rule you abide by with each trade.

An one can trade a stock or a theme.  But it’s takes a disciplined trader to trade well.

One of the biggest issues facing all walks of traders is a severe lack of discipline and structure in stock buying habits.  Many fail to use stop losses, or even protect gains with a simple trailing stop loss strategy.  Others risk far too much.

That’s a recipe for disaster.  A trader with no plan for action has already lost. Failure to plan can – and oftentimes will – lead to unnecessary loss.  Plan ahead and you’re ahead of the game.

 

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