Investing in Marijuana for Beginners
Foothill Capital Management has plenty of advice about investing in marijuana for beginners. The world of finance is a wide one, and it’s easy to get bewildered by the competing calls for your attention. However, there is potential for returns out there in the marijuana industry. If you consider yourself a beginner in the world of investing, and particularly, in cannabis investing, you will find answers to common questions in our guide.
Grand View Research calculates that the global legal marijuana industry will more than quadruple in value between 2018 and 2025, from approximately US $13.8 billion to an estimated US $66.3 billion. Foothill Capital Management is an organization run by experienced financial professionals. We can break down the complexities of investing in marijuana for beginners, how to invest in marijuana, making it easier to grow your green without getting your hands dirty.
Investing in the Business of Marijuana
There are multiple avenues available to investors in the US who seek to add cannabis to their portfolios. It is possible to purchase publicly-traded shares of stock in cannabis-related companies. Alternatively, you can purchase shares in a fund, which offers exposure to many companies in the sector. Exchange-traded funds, also known as ETFs, are a group of investments together in a fund that is traded on an exchange (such as the New York Stock Exchange, or the Nasdaq). The fund owns the stocks within, and either tracks an index, or a group of investments representing part of an industry, or an investment theme. An ETF offers you small fractions of the companies represented within that ETF. How small the fraction is depends on the weighting of the stocks held in that fund. ETFs are in vogue because investors can invest in a group of stocks without having to handpick individual stocks. This saves time and research, while providing diversification, which is widely considered an essential investing strategy.
Beginner’s Guide to Investing in Marijuana Stocks
The easiest way to help beginners get started investing in marijuana stocks is to answer the most frequently asked questions potential investors have.
Q: What are the benefits of investing in cannabis?
A: There are many facets to the cannabis industry: medical, recreational, retail, agriculture, extraction, and more. Several firms have diversified into the biotech sphere to launch studies and research the application of cannabis in various treatments. Canadian cannabis companies are innovating with a range of new products, many of which are taking off in popularity. The billion dollar industry includes CBD gummy candy, CBD beverages, CBD personal lubricant, and more. Derivative products are 60% of the cannabis market in legal US markets, and likely to expand at a faster rate.
Q: What are the risks of investing in cannabis services/companies?
A: The first thing to bear in mind when it comes to investment is that there’s no such thing as a perfectly safe investment. All investing involves an element of risk: securities of all kinds can lose their value as market conditions change. Marijuana businesses are particularly volatile due to their uncertain legal status at the federal level. There are a lot of different ways to approach cannabis investing: focusing on medical marijuana or recreational marijuana through their individual businesses or even through growth mutual funds, marijuana mutual funds and many other options depending on your risk tolerance.
Q: But medical marijuana is legal, isn’t it?
A: While medical marijuana is legal in 34 states and the District of Columbia, marijuana is still federally illegal. It is true that federal legalization in the United States, looking at the demographics, is now merely a matter of when. However, there is a lot of damage activists in the White House, for example, can do to the cannabis market before that comes to pass. That said, there have also been indications that other areas of the White House are amenable to relaxing federal rules around states’ approaches to marijuana. Canadian cannabis companies and cannabis products are stealing a march on the rest of North America, and it is unlikely that the United States will want to compete with one hand tied behind its back for too long.
Q: How can we invest in cannabis stocks given this legal status?
A: With cannabis’ legal status in mind, investing in cannabis stocks is best undertaken by proxy. You can approach the stock exchange as an individual, establish a brokerage account, and buy stock in publicly traded cannabis companies that you feel are strong contenders. However, this is a risky strategy that requires consistent attention and agility in order to respond to stock market performance. If a marijuana company suffers some kind of significant setback, their stock can tank overnight and leave you thousands of dollars out with little recourse. Another issue with marijuana stocks is that a lot of companies are not yet profitable. One of the main ways they generate the capital necessary to fund their operations is to issue new shares. This practice unfortunately dilutes the value of existing shares— another reason why it is risky to concentrate investments on just one or a small handful of companies.
How to Invest in the Marijuana Industry in 2020 and Beyond
There are alternative securities to choose over simply buying marijuana stocks. Funds are one option.
- Exchange-traded funds, or ETFs, are a selection of stocks, usually of a focused variety such as a marijuana ETF involving the marijuana industry. ETF offers a lot of diversification for a low buy-in. This has an advantage over individual stocks as the exposure to risk is lower.
- Hedge funds are partnerships between preselected or accredited investors, also known as limited partners, and the fund manager (the general partner), who manages the investors’ money. The intention of a hedge fund is to reduce risk and increase investor returns. Hedge funds are considered to be aggressive securities that seek a profit in spite of general market performance.
- Alternatively, mutual funds are similar. They are offered to the public for daily investing. Some funds have minimum investment requirements.
Cannabis Growth Fund is a mutual fund that focuses on the legal cannabis industry. We invest primarily in exchange-listed equity securities of companies in the cannabis industry. From agriculture technology to biotech, cultivation, retail, products, industrial hemp, and more, our professionally-managed fund has, in our opinion, advantages over alternative fund options or individual stocks. Our expertise, established over 25 years in finance, provides us with the knowledge and dedication to identify beneficial opportunities for investors and mitigate volatility.
The marijuana mutual fund’s advantage over individuals investing in separate stocks is that our fund manager is able to react to volatility with greater alacrity than typical, and deploy options to enhance the marijuana’s mutual fund’s return in certain circumstances. We provide the potential for small-cap, aggressive growth exposure, capitalizing on the rapid advances made in the industry in and up to 2020, and anticipated industry developments in the future. Investors should act accordingly when considering our place in their equity portfolio, considering their long-term objectives and goals.
We primarily invest in companies that satisfy our criteria, as follows:
- Price momentum – we seek out companies that have strong price momentum compared to their peers, so that we can keep our focus on viable companies.
- Long-term growth potential – we look for companies with promising long-term growth prospects and revenue growth.
- Management team experience – investing in marijuana is a new sector with strict regulatory guidelines. The experience of a management team is essential in a company’s success, and we judge companies on this merit.
- Branding and market exposure – in our opinion, the sector will come to be dominated by the most successful brands. In order to capitalize on this, we select companies that we believe will command a large share of the market through effective branding of their products and services.
- Financial viability – we select companies with strong balance sheets to invest in.
Companies with this combination of qualities have, in our estimation, the elements needed to succeed in this volatile market environment.
How to Invest in Marijuana Stocks
OF SPECIAL NOTE
Statements, estimates and forecasts are subject to significant legal, business, economic, and competitive uncertainties, including competition, limited access to bank services, litigation, enforcement actions, and the receipt of government authorizations. This includes differences in, among other things, laws, regulations and guidelines relating to the manufacture, transportation, and storage of cannabis, and the conduct of operations, which vary among the U.S. federal government, various states, and foreign jurisdictions. There can no assurance that such estimates and/or forecasts will be realized, and these are not indicative of future investment performance. Historical data is not indicative of future performance.
Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained from 888.885.0588 or at https://www.cannabisgrowthfunds.com/. Please read the prospectus carefully before you invest.
Investing involves risk, including possible loss of principal. The cannabis industry is subject to rapidly evolving laws, rules and regulations, and increasing competition which may cause such companies to change business model, shrink or suddenly close. These may limit access to banks, and create significant burdens on company resources due to litigation, enforcement actions, receipt of necessary permits and authorizations to engage in medical cannabis research or to otherwise cultivate, possess or distribute cannabis. Possession and use of cannabis is illegal under federal and certain states’ laws, which may negatively impact the value of Fund investments. Where legalized by states, cannabis possession and use remains a violation of federal law. The companies in which the Fund invests are subject to various laws and regulations relating to the manufacture, management, transportation, storage and disposal of cannabis, including health and safety, conduct of operations, and environmental protection. Even if a company’s operations are permitted under current law, they may not be permitted in the future, and a company may not be able to continue operations in its current location. Controlled substance legislation differs significantly between countries and may limit a company’s ability to sell products.
Foreign investing involves social and political instability, market illiquidity, exchange-rate fluctuation, high volatility and limited regulation risks. Emerging markets involve different and greater risks, as they are smaller, less liquid and more volatile than more developed countries. Investments made in small, mid-capitalization and micro-capitalization companies may be more volatile and less liquid due to limited resources or product lines and more sensitive to economic factors. Fund investments will be concentrated in an industry or group of industries, and the value of Fund shares may rise and fall more than more diversified funds. Purchasing and writing put and call options entails greater than ordinary investment risks. Options ownership involves the payment of premiums, which may negatively impact Fund performance. Please see the prospectus for details of these and other risks. Distributed by IMST Distributors, LLC.