Taming the stock market requires a smart and informed mind. With the cannabis industry booming, several new companies have been listed on NYSE, NASDAQ and the OTC market. It is well known that investing in these companies comes with a lot of risk. This is not surprising; with the market being newer and the companies just popping up, there are a lot of “what ifs” and a lot of volatility.
Don’t let this scare you away from investing in the cannabis industry as a whole. There are still a lot of low risk ways you can add to your stock portfolio.
As always, it is important to keep in mind that market conditions can change at a moment’s notice. Before you invest, do your own independent research and due diligence. Assess the risks associated with each investment and choose cannabis stocks you are comfortable investing in. Here are just a few options to consider.
Cannabis ETF Funds
Like several other popular industries, there are ETFs, or exchange-traded funds, that concentrate on cannabis-related assets. An ETF is a collection of stocks or other securities. They tend to have a low entry point but make money as the investments grow within their portfolio.
What makes an ETF a low-risk investment is its diversification. Rather than putting your putting all your eggs in one basket, you will invest in several players in the industry. Some of the most successful ETFs will contain a good mix of shares in large, established companies and promising newcomers.
ETFs are still traded in the open market, so the prices do rise and fall. Like a normal company stock, the ETF may pay you a dividend. A well-rounded ETF may not fluctuate much in price on a daily basis. Given time, it could produce worth-while dividends for you.
Cannabis Distribution and Investment Companies
Another low-risk option is to invest in companies that are supportive to those in the industry. Distribution companies work with the major players of the industry to help get them into stores. Their services may include transportation, marketing, or visual merchandising in dispensaries. Their goal is to get in-demand products into stores and make them look good.
One of the reasons why investing in distribution companies is a little less risky is the adaptability. Because they work with multiple brands, their sustenance and revenue aren’t at risk. Should one of those products fail, they simply work to acquire another brand or client.
Some companies do a lot more than just distribution; they are major supporters to the industry and help cannabis companies grow. A good example of this is Origin House (OH) stock. Origin House offers cannabis companies a brand accelerator program that includes access to financing, marketing assistance, and distribution.
Individual Company Stocks with Low Risk
While cannabis companies do come and go, there are plenty of major players who have been in the industry for a long time. If you are looking for a company with relatively low risk, try thinking about brands you already know about. Many of the companies you use around the house every day already have their hands in the cannabis industry.
Like any other market, evaluate your options carefully before you buy. Avoid purchasing cheap stocks just because the “better” companies appear more expensive. It is better to make an investment you are confident in than to own several cheap shares of a company you know very little about.
If you are wanting to invest in an “expensive” cannabis stock but don’t have the funds, consider options trading. After watching the stock for a long period of time and understanding the market, you may be able to make successful options trades. Options trading is higher risk, but you don’t invest as much as if you were buying the shares outright.
How to Minimize Your Investment Risk
No matter what you choose to invest in, there are ways to minimize your risk:
• Conduct independent financial research
• Compare financial reports
• Invest in a product or service you believe in
• Diversify your portfolio
• Choose companies that have a good track record and a solid plan for the future
The cannabis industry has a lot to offer for investors. While the increase in opportunities does mean a bit more volatility, it doesn’t mean there aren’t low risk options available.