Since medical and recreational cannabis became legalized in Canada, publicly-traded cannabis companies with stocks — often referred to as pot stocks, or weed stocks, as a shorthand — have allowed everyday people to invest in the cannabis economy.
For investors around the world — including countries like Australia, where medical and recreational cannabis legalization laws vary from state to state — it’s a chance to get in on the ground floor of an emerging, multi-billion-dollar industry.
With the global legal cannabis market estimated to be worth $146.4 billion by 2025, according to a report by Grand View Research, Australian investors can learn a few things from Canada’s market.
How to invest in cannabis: buy stocks or ETFs
The first question to ask yourself is how you want to invest: in a specific publicly-traded company, or in the industry as a whole?
If you want to invest in a specific Canadian cannabis company, you can buy some of that company’s stock in hopes that the company’s value increases, thus increasing the value of your investment. Ideally, you buy low and sell high, once the company’s value has increased.
If you want to buy into the industry as a whole, you can invest in an exchange-traded fund (ETF). An ETF is like buying into a package of cannabis companies, and betting that the value of the industry will go up in the aggregate.
If you’re a bit more flush with cash, you can get directly involved with cannabis companies as a direct investor or even as a partner in the company.
If you’ve seen the news about the rapper Drake starting a cannabis company, that’s what he’s doing: partnering with a major cannabis company (in this case, Ontario-based Canopy Growth) to build something more directly.
If the idea of investing your money and letting the company do what it wants with it isn’t your speed, and if you have a sizeable chunk of change to invest, this may be more up your alley.
And there’s also lots of ancillary industries you can invest in as well — companies that make packaging, testing companies, or cannabis-adjacent products of any sort.
When to invest in cannabis
To be clear, investing in anything is an entirely personal decision, and major financial decisions are best discussed with a registered financial planner. But if you’re in a position to invest, and have a high-risk tolerance, then cannabis may be an option.
But there’s always the downside, too. These days, the stock performance in the cannabis sector has been much poorer than it was in 2016 or 2017. These days, investors have struck a more apocalyptic tone.
“Both retail and institutional investors have called the bottom of the cannabis industry multiple times,” writes Victor Ferreira, in the Financial Post.
It’s definitely important to keep in mind that the volatility of cannabis stocks means that while you can make a bunch of money, you can lose just as much.
How to invest in cannabis
If you’ve decided to pull the trigger and invest some money in the Canadian cannabis market, the place to start is by getting a trading account — most banks will have options for you, and there are investor-specific platforms created for everyday folks looking to play the stock market.
Once you have an investment account, the rest is pretty simple: find the company or ETF you want to buy into, and you’re off to the races.
Cannabis stocks are listed on several different exchanges, but most Canadian companies list on either the Toronto Stock Exchange, the Toronto Venture Exchange, the New York Stock Exchange, or the Nasdaq.
In each case, Australian investors will be investing in a foreign currency, and any fluctuations in currency price will affect returns or losses depending on whether the Australian dollar is going up or down.
If you’re looking to keep it close to home, there are also a number of Australian cannabis companies listed on the Australian Stock Exchange that someone could invest in. Same principles apply, but you’ll be working in Australian dollars, and won’t lose anything on the exchange.
Things to remember before investing
Investing in weed stocks is an inherently risky bet. Investing in anything is a risky bet, for that matter, but in the industry’s nascent stages, volatility is high and there’s no way to outsmart the market.
Due diligence is the name of the game— knowing who, or what, you are trusting with your money. Check out the leadership of the company, read their financial reports and investor pitch deck, find out when a company plans to turn a profit (since it’s early in the industry, few companies are there yet), and look at how the company plans to be competitive.
In the end, it often comes down to a gut decision. By investing, you are putting your faith in this company to make money, get bigger, and demonstrate some value to its customers.
- Investing in Canadian Cannabis 101 - November 29, 2019
- Vacationing in Canada? Here’s What Australians Should Know About Cannabis - October 25, 2019
- How Has the Canadian Medical Cannabis Market Changed Since Legalization? - September 6, 2019