Can You Invest In The Cannabis Industry?

**Disclaimer: The information provided on this blog is for educational and informational purposes only and should not be construed as investment advice. The content is not intended to be a substitute for professional financial advice, and readers should always consult with a licensed financial advisor before making any investment decisions. Readers are responsible for their own investment decisions and should conduct their own research and analysis before making any investment decisions. 

Whether or not you partake in cannabis, there’s no doubt that the industry is evolving quickly. As more and more states (and countries) legalize the plant, savvy investors are turning their attention to the market – and rightly so. 

From cannabis stock to exchange-traded funds ETFs and so much more, there are plenty of ways to invest in the cannabis industry legally. While all investing involves risk, cannabis is a particularly volatile industry due to its federal status as an illegal substance.

Still, those interested in investing in cannabis can do so if they do their due diligence to mitigate the risks involved properly. 

With nearly 15 years of experience in legal cannabis advising, 3C knows how to thoroughly vet businesses to determine future profitability and avoid common investment pitfalls. Here is everything you need to know about how to invest in the cannabis industry:

How can I invest in the cannabis industry?

As with any other industry, multiple investment vehicles are available in the cannabis sector. You can: 

• Purchase publicly-traded shares of stock in cannabis-related companies 
• Purchase shares in a fund, such as a mutual fund, index fund, or exchange-traded fund (ETF)
• Invest in and back a cannabis start-up (angel investing, venture capital, etc.) 

In addition to all these different vehicles, you can dive deeper into the industry and invest in a specific sector: medical, recreational, retail, agriculture, extraction, and more. 

For instance, the application of cannabis in pharmaceuticals and biotech has captured the attention of many investors, notably as the industry anticipates federal legalization in the future. 

However you choose to invest, researching the specific companies or funds you want to invest in is essential. 

Why is it risky to invest in cannabis?

In an industry where the legal status is obviously hazy, investing involves some inherent risk. From constantly changing legislation and limited government-backed research to the typical considerations of an emerging market, investing in the cannabis industry is tricky. 

With that being said, it also comes with immense financial potential. As with any high-risk investment, the potential reward could also be great. Understanding the risks is important to get a full picture of what you’re investing in before you do it. 

Here are some reasons why investing in cannabis is considered risky by many in the financial industry: 

It is a relatively new industry.

While many states are legalizing recreational cannabis, existing companies still struggle to grow significantly. 

There are bureaucratic hoops around becoming a multi-state operator and intense capital needs of a new cannabis business; many cannabis businesses that offer stocks are tiny. As a result, they tend to fall into the penny stock arena, which is considered risky for beginner investors. 

Moreover, navigating the volatility of this emerging market takes work. From wide price swings as markets develop at varying rates state-by-state to research not being publicly available, there is much less consistency than investing in a more established industry. 

The financial services industry remains wary.

Finance is almost always a little conservative. Due to the federal legal status of cannabis, many banks are reluctant to touch the industry. This is why you may notice that most dispensaries only take cash or debit. 

As a result, some investment professionals, such as advisors or portfolio managers, won’t be able to recommend cannabis stocks to invest in. Some may not be able to work with you at all if your employer is a cannabis business. 

There are a lot of foreign stocks. 

Countries outside the U.S. tend to have much more developed and progressive cannabis industries. For instance, Canada makes up some of the most extensive cannabis stocks available for trading in the U.S. 

When investing in foreign cannabis stocks, you may have limited financial data access. For instance, company reports and other metrics that the U.S. may otherwise be required to provide. 

From speculative appeal, overvalued stocks, penny stock promotions, and more, dealing with foreign stocks tends to be riskier. Additionally, it could be hard to find legal recourse if an investment is fraudulent.