Cannabis is the scientific name of the marijuana plant. It has other names like, pot, grass, weed, and dope. It comprises three major properties and is made up of many chemical constituents including dozens of cannabinoids, the two most commercially relevant being: delta-9 tetrahydrocannabinol (THC), and cannabidiol (CBD). Only THC makes one high. Hemp is a strain of species of cannabis having low THC levels and high CBD levels. Hemp is useful in providing fibers to make rope and clothing.

In many states all around the world, there is the question of whether or not cannabis should be legalized. In some places, it has been criminalized while in other areas, it is used freely and openly without any fear. As this debate goes on, entrepreneurs and companies look for opportunities to either sell or invest in the product to make money. There are risks and bad actors involved just like in any kind of business. Below is what one should understand before choosing whether or not to invest in cannabis stocks.

Understand the types of marijuana products.

There is medical and recreational marijuana Medical marijuana is usually prescribed by doctors and health practitioners to patients who may be suffering from, say, post-traumatic stress disorder as a coping mechanism. They have a card to indicate that their use of the drug is purely medicinal. Recreational marijuana on the other hand, is simply used for enjoyment and is what many people use to get high and have a “good time”.

Know the different types of marijuana stocks.

There are marijuana growers who simply do the planting, cultivation and harvesting of the marijuana. Cannabis focused biotechs deal with the processing in industries and firms before packaging and distribution. Then, there are the providers of supporting products and services who make possible deliveries and marketing of marijuana.

Understand the risks of investing in marijuana stocks.

Supply and demand imbalances is one of them. There may be a high supply of marijuana in an area where the demand has plummeted for a number of reasons. It could be there is a competitor with cheaper prices or one whose product is of higher quality. As well, there could be a high demand but inadequate supply.

Risk in those that are over the counter stocks. These kind of stocks can put one out of business as there is an excess supply from various providers. Also, if the quality is not up to standard, it may give a bad name to marijuana companies and cause a decline in sales.

Legal and political risks. Marijuana is not legal everywhere and when found in possession where it has been prohibited, one will face the full arm of the law. Also, due to the debate of whether or not to legalize it, there are political regulations that have been drawn up in accordance to state laws that have to be followed to the letter.

Know what to look for in a marijuana stock.

It is imperative to have a strong and competent management team who will see to day to day operations without any hitch. As well, you need a growth strategy to ensure that investments have their returns and be able to sustain healthy competition with fierce rivals looking to push through the market.

There needs to be consideration of cannabis production costs, sales per gram and cash cost per gram. For bigger companies and firms, the extent of international operations and distribution as well as dilution risks through warrants and convertible securities.

All in all, there needs to be a reasonable profit margin where the assets are not overpowered by the liabilities and customer satisfaction is ensured.

Evaluate the top marijuana stocks and exchange traded funds (ETFs).

This will require a serious, in-depth look at the growers, biotechs, ancillary providers and ETFs.

Invest cautiously.

It is well known that pure plays are riskier than diversified ones. This is because they focus solely on the marijuana businesses and products therefore, the greater the chance for returns, the greater the chance for losses. Avoiding individual investments is another wise approach so as to minimize any losses that may be incurred in investing. Lastly, those buying in should look out by keeping exposure at a low percentage thereby limiting the overall risk.

Monitor the changing industry dynamics.

The business strategies, regulations, competitive forces and laws of companies are always changed and modified to stay relevant and be formidable to its consumers. Understanding that will go a long way in helping one invest, whether a newbie or a veteran.

Those are the need to know intricacies of investing in cannabis stocks and any other business really. It is a general rule to understand the market before venturing into it, upon which, more research needs to be done as there is always something new to be learned, by even the best.

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