The legal marijuana industry, including marijuana stocks, is, pardon the pun, growing like a weed these days.
And with double-digit growth rates anticipated for the next several years in North America – 23% to 35% each year – the industry presents investors with marijuana stocks to invest in that can’t be ignored.
But before we discuss recommendations for the best weed stocks to invest in, let’s take a look at the risks associated with investing in marijuana stocks.
Because the risks are huge, and to invest wisely is to cultivate an awareness for both the potential downside and potential payoffs of investment in this growing industry.
First of all, the risks. Investing in a business that is technically illegal in a majority of countries is a gamble. While that tide is gradually shifting, the fact remains that marijuana is an illegal substance, recreationally and medically, in a number of countries.
Here in the U.S., in the midst of changing perceptions and state laws, it remains federally illegal – a Schedule I substance – and that doesn’t appear to be changing any time soon.
This poses numerous challenges for businesses in the industry, not the least of them being limited or nonexistent access to simple banking services. Financial institutions are understandably unwilling to provide assistance to companies that may earn them a criminal or fineable offense.
The federal illegality of pot also puts profitable cannabis businesses at a loss when it comes to corporate income-tax deductions, subjecting them to tax rates in the realm of 70% to 90%.
With these risks under consideration, now we can turn to marijuana stocks to invest in 2018.
One place to begin, if you are new to marijuana stocks investing, is Cannabis Wheaton Income Corp (NASDAQOTH:CBWTF), the first royalty pot stock in the world. Cannabis Wheaton is to the marijuana industry what a middleman is to the business sector at large.
They step in and finance operational expansions for growers, in exchange for a percentage of the weed production at rates well below market value. Cannabis Wheaton then turns around and sells the weed at market rate and profits from the pocketed difference.
Currently, the company is poised to become one of Canada’s top three cannabis sellers, pending Canada’s legalization of recreational weed and the success of the company’s licensed growers in meeting their production expectations. If expectations are met, Cannabis Wheaton anticipates receiving and selling 230,000 kilograms of cannabis by 2019.
The greatest risk with a business model like this is its dependency on high market demand and their partners fulfilling their ends of the bargain to meet this demand from the get-go.
If your marijuana stocks investment interest lies more with cannabis growers, take a closer look at OrganiGram Holdings (NASDAQOTH:OGRMF).
What OrganiGram has to offer as a modest grower, in comparison to a handful of giants among Canadian growers, is exactly that – its modesty. While these other growers are working feverishly to expand productions sites across Canada, the objective of OrganiGram is to expand its one production site in New Brunswick. This may limit its market scope somewhat, but at the gain of significant reduction of its growing costs and potential margin boosts.
One of those margin boosts may come in the form of the higher margin cannabis oils, which OrganiGram is embracing as it expands beyond dried cannabis. The company’s most recent quarterly report showed sales of cannabis oil well above its previous quarter, totaling 419,000 ml. The significant price value of these oils, compared to dried cannabis, may boost the company’s sales beyond its peers. OrganiGram’s modest business may make it easy to overlook in a sea of bigger fishes, but its fundamental model may end up taking it farther in the long-term.
Finally, aggressive investors interested in drug development may want to take Cara Therapeutics (NASDAQ:CARA) under consideration. The company’s association with marijuana stocks comes from its development of a pre-clinical CB-receptor agonist, CR701. But the greatest potential for success comes from its lead drug, CR845, which has no association with cannabis. So far, none of its therapies have been approved, but its hints of promise make it attractive to some investors, should it make it onto pharmacy shelves one day.
For more on this topic, read Don’t Get Burned: 5 Must-Knows for Marijuana Stocks.