Excitement over potential U.S. cannabis legalization has sent the best marijuana stocks soaring this year. That’s for a good reason — Americans spend almost as much on marijuana as they do on cigarettes, potentially making pot stocks the next Big Tobacco. Investors, however, need to be picky. Why? Full U.S. legalization will likely take far longer than people expect.
Frequently Asked Questions
1. How to Invest in Marijuana Stocks
The top marijuana stocks have wide-moat businesses that allow high margins. Companies like Cronos (NASDAQ:CRON) and Canopy Growth (NASDAQ:CGC) are both owned by marketing-focused parent companies and sell higher-end products to match. Other names like Green Thumb (OTCMKTS:GTBIF) and CuraLeaf (OTCMKTS:CURLF) are traded away from the Nasdaq and New York Stock Exchange (NYSE), meaning they can do business in the states that allow them. It’s these types of companies that can differentiate themselves from the rest.
2. How to Buy Marijuana Penny Stocks
Some of the highest-potential marijuana stocks are those with tiny market capitalizations like Green Organic Dutchman (OTCMKTS:TGODF) and Medmen (OTCMKTS:MMNFF). Though these smaller companies will struggle to gain economies of scale, they can build strong brands and supply chains that larger companies might buy one day. Plus, coming from such a low base, these are the lottery-type companies that could either go to zero or quadruple your initial investment.
3. What Marijuana Stocks to Buy
Investors should know their risk tolerance before buying marijuana stocks. Low-margin pot producers like Tilray (NASDAQ:TLRY), Aurora Cannabis (NYSE:ACB) and Sundial Growers (NASDAQ:SNDL) have gross margins that are either negative or hover in the single digits. These companies stand to gain the most on U.S. marijuana legalization but are otherwise worth zero if legalization doesn’t happen before they run out of cash. On the other hand, U.S.-operated businesses that trade in Canada like MedMen run in reverse. The longer Congress dithers on marijuana reform, the larger these Canadian-traded companies can grow before foreign competition comes in.
4. Where to Buy Marijuana Stocks
Because cannabis is still a Schedule 1 substance, the Nasdaq and NYSE exchanges ban listed pot companies from business in the United States. That means investors with regular trading accounts only have access to marijuana stocks that operate outside of the country. On the other hand, U.S. cannabis companies trade either on foreign exchanges or over-the-counter (OTC). Investors can buy these U.S. companies with access through their brokerage accounts.