Now that 2020 is here, I want to revisit the subject of marijuana stocks.
… and coming changes could get it moving again.
One of the biggest prerequisites for trading smarter in the stock market is to be prepared. That means you gotta know when different industries are about to move. Let’s take another look at why this niche might still be full of potential.
Table of Contents
- 1 What Are Marijuana Stocks?
- 2 Why Invest in Marijuana Stocks?
- 3 How to Choose the Best Marijuana Stocks to Buy
- 4 Trends and News Influencing Marijuana Stocks
- 5 Performance of Marijuana Stocks in 2019
- 6 Future of Marijuana Stocks in 2020
- 7 3 Best Marijuana Stocks To Watch
- 8 How Do You Buy Marijuana Stocks?
- 9 4 Tips for Trading Marijuana Stocks
- 10 Conclusion
- 11 One Platform. One System. Every Tool
What Are Marijuana Stocks?
This may seem like a really basic question … but it’s worth defining what we’re looking for before we go into anything strategic.
Marijuana stocks, also known as weed or cannabis stocks, include more than just companies that sell pot. In fact, this market’s grown enough to include three different categories of businesses that make up this niche…
Retailers and growers: These businesses grow cannabis and distribute products to customers. Some of these businesses operate retail stores as well.
Cannabis biotechs: These biotech companies focus on developing drugs from the compounds in hemp or cannabis (such as THC or CBD).
Suppliers: The expanding marijuana market creates new demands. Companies in the industry need support, like products and services. Think hydroponics and lighting systems for growers, packaging products for retailers, management services, and marketing.
Companies in the supplier category provide solutions for these industry-specific needs.
Why Invest in Marijuana Stocks?
Part of our job as traders is to watch what’s going on in the world and look for opportunities.
According to the World Health Organization, marijuana is the world’s most commonly cultivated, trafficked, and used illicit drug … so the demand is already there.
The push for legalization is growing … It’s legal in several states for recreational use and in even more for medical use. In 2018, Canada legalized it, and more countries around the world are following suit.
There’s a lot of growth in the marijuana market, and it’s understandably grabbing the attention of businesses, analysts, investors, and more.
Despite still being illegal under federal law, the U.S. legal marijuana industry was still estimated at $10.4 billion in 2018.
What would the potential for business be if the U.S. legalized it nationally? The opportunity is so big that some analysts believe it could surpass the soda industry.
How to Choose the Best Marijuana Stocks to Buy
Trading marijuana stocks isn’t any different than other stocks. You still gotta do your research. You have to understand what you’re buying. Build a solid trading plan that’s tailored to your strategy and remember to always stick to it.
Establishing solid decision-making processes is exactly what we do in StocksToTrade Pro. It’s something you can apply to all trades, no matter the sector or industry. It’s part of your foundation to becoming a consistent trader.
Here’s where marijuana stocks can be different: the industry trends. The industry is so new and big changes can happen. So it’s important to watch for trends, news, or catalysts that can affect price behavior. Let’s take a look at a few of these trends…
Trends and News Influencing Marijuana Stocks
The closer we get to federal legalization, the easier it’ll be for businesses to start and grow. This is definitely something to watch for.
Currently, marijuana is legal for adults over the age of 21 in 11 states and legal for medical use in 33 states. Illinois made marijuana sales legal on January 1, 2020 and topped $5.4 million in sales in just the first two days.
According to a Pew Research survey, over 60% of Americans believe the use of marijuana should be legalized.
Banks and credit unions are afraid of getting involved with marijuana companies because of legal issues. That fear discourages banks from providing even basic financial services to pot businesses. And that forces these companies to deal in cash and get creative with financing.
Bills like the SAFE Banking Act can cause banks to warm up to marijuana companies. That can help remove the constraints that prevent them from expanding. This is definitely a catalyst worth watching.
FDA and CBD
Cannabidiol (CBD) is the non-psychoactive compound derived from cannabis and hemp. It’s known for its perceived medical benefits. It’s been the darling of marijuana stock investors since President Trump signed the Farm Bill into law in December 2018. That bill legalized the industrial production of hemp and hemp-derived CBD.
The U.S. Food and Drug Administration (FDA), however, released an update recently that stated CBD’s potential to harm consumers and cause side effects. As a result, the FDA cast doubts over whether it’ll green-light CBD as a possible food additive in products. That could affect companies with plans to sell CBD-infused food and beverages in the U.S.
Watch for developments with this story.
Marijuana businesses face a lot of difficulties and constraints. And that can push sales estimates down and move loss projections up.
Investors will be looking for profitable marijuana companies. Earnings releases could really affect weed stock price movements in 2020.
Performance of Marijuana Stocks in 2019
The expectations for marijuana stocks in 2019 were sky high, but by the end of the year it was a big disappointment. Although the overall market had one of its strongest years in a long time, the marijuana market had one of its worst.
The first quarter started with promise — more than a dozen pot stocks rose at least 70%. After that, the market spiraled down for the rest of the year, and a large number of cannabis stocks lost a significant amount of their market cap.
Don’t necessarily count this niche out, though. Remember, this is a new and growing industry that didn’t really exist before, at least from a government tax revenue perspective. We’ll definitely see some growing pains.
Future of Marijuana Stocks in 2020
The problems the marijuana industry faces won’t be solved overnight … but I still believe weed stocks can offer compelling opportunities for traders.
But we have to be realistic about the growth process we’ll see in this industry. Canada legalized marijuana nationally but still struggles with supply and distribution issues. That’s partly due to snags with the government processing license applications in a timely manner.
Canada’s situation is a reminder that even if there’s high demand for a product, that doesn’t mean that profits will flow right away.
We may actually see a thinning out in the number of companies due to the different financial challenges the industry is facing. But given all that, we may also see companies take a more cost-focused approach for a better 2020.
Let’s look at some potentials for the best marijuana stocks to invest in.
3 Best Marijuana Stocks To Watch
Before I go further, let me say that nothing I say here should be taken as investment advice or advice to invest in stocks. All trading or investing is risky. Never risk more than you can afford, and always do your research.
Innovative Industrial Properties (NYSE: IIPR)
Innovative Industrial Properties is a cannabis-focused real estate investment trust (REIT).
Here’s part of the reason it’s done so well … It aims to help marijuana companies overcome the financing problems we discussed earlier. The company acquires growing or processing facilities for cash. Then it leases the property back to the same company for a 10–20 year period.
The company started 2019 with only 11 properties in nine states. But it grew to 46 properties in 14 states by the end of the year. If you like higher-priced stocks, this could be a good candidate for your watchlist.
Planet 13 Holdings Inc. (OTCQX: PLNHF)
Planet 13 Holdings Inc. operates as an integrated cannabis company with cultivation, production, and dispensary operations.
While larger similar businesses are in retail license wars to gain market share, Planet 13 Holdings is taking a different strategy. Instead of aiming at quantity, it targets repeat business by providing a unique customer experience.
Its flagship store in Las Vegas will span 112,000 square feet (larger than the average Walmart). Plans include a pizzeria, coffee shop, event stage, and the broadest selection of cannabis products available. It’s also incorporated technology and a high-end store layout to enhance the buying experience.
Planet 13 Holdings Inc. is opening a location in California in 2020 … It will be interesting to see if the company’s focus on quality and customer experience will play out.
Canopy Growth (NYSE: CGC)
Canopy Growth cultivates and sells medicinal and recreational cannabis and hemp — all through a portfolio of brands.
Before the volatility hit the weed market, Canopy Growth was one of the rising stars in the niche.
When alcoholic beverage giant Constellation Brands (NYSE: STZ) acquired 40% of CGC stock, it not only helped Canopy Growth’s balance sheet … it also brought validity to the brand.
In 2019, the stock price took a dive like many others, and it seems that Canopy was burning through cash at an alarming rate.
Given the challenges of the marijuana market, Canopy Growth may be doing what it must in order to expand. Will its strategy of sacrificing profit for market share pay off? Keep this one on your watchlist if you want to see how it goes…
How Do You Buy Marijuana Stocks?
Buying marijuana stocks is easy and no different than buying other stocks. All you need is a computer and an internet connection to get started.
If you don’t have one, you’ll need to pick an online broker to get access to publicly traded marijuana stocks. There are lots of brokers to choose from, so be sure to do your research here. For more tips on brokers, check out this post.
After you choose a broker, you need to fund your account. Some brokers have a minimum initial deposit. Make sure you consider that before you choose a broker.
Once you’re all set up, you can start your market research. To actually purchase shares, you can put in an order. In StocksToTrade Pro, we recommend almost always opening up limit orders so that you can have better control of your price entries.
After your order executes, that’s it … you own your first marijuana stock!
4 Tips for Trading Marijuana Stocks
Follow Your Rules
No matter what stocks you decide to trade, you should always have rules that help you make solid decisions. You want to limit your risk in trades. That’s just part of trading smarter.
And you should apply these rules to every type of stock you’re interested in. Again, the purpose of StocksToTrade Pro is to help you create these rules so that you can become a self-sufficient trader.
Only Trade Your Setups
The most successful traders always look for chart patterns and only trade a limited number of setups.
It takes time to find setups that work for you. You gotta look at charts until your eyes bleed, as I like to say. You also have to practice different setups and track your progress. Don’t have a lot of confidence in the markets? That can come with practice and mentorship.
Know What You’re Trading
Every niche has something different about it that affects pricing. In fact, some of the most successful traders have gained success by specializing in specific markets.
Pay attention to particular differences in marijuana stocks. Notice how pricing can react to things such as time of day (pre-market, opening, mid-day, late-day, after hours), float size, catalysts, and so on.
Believe it or not, stock types have different ‘personalities.’ The better you get to know the differences, the better you can spot trading opportunities.
Watch for Trends and News
As I said earlier, the marijuana market is so new, we’re likely to see a lot of growth and changes. You gotta keep up with what’s happening both globally and with individual companies.
Trends and news can be catalysts that lead to big moves both up and down. But it can be difficult to keep up with all the information. The good news is that the StocksToTrade platform includes a great news feature that helps you track the latest news for stocks.
That’s my review of marijuana stocks in 2019 along with insight for 2020.
I think this industry is exciting. It has the potential to change the world, not just in terms of business, but also culturally.
But that can mean that we shouldn’t necessarily expect everything to go smoothly.
I mean, as bad as the dot-com bubble was, it produced Amazon, one of the biggest companies ever. Does the marijuana sector have that same kind of potential? Only time will tell. I think this sector is definitely worth watching.
And always remember that all trading includes risk … So remember to always do your research. And if you’re trying a new strategy, you can use StocksToTrade’s paper trading feature. It’s a smart way to help you iron out the kinks — before you risk a cent.
Build a case for every trade. And create a process to help protect your account from losses … That requires a lot of work on your part.
If you want a hand in learning the markets, I want to invite you to my mentorship program StocksToTrade Pro. I work hard to help our trading community so that traders don’t have to learn the hard way. Come join us!
What do you think about marijuana stocks? Let me know in the comments below!