If you’ve ever bought a lottery ticket or asked someone out on a date, you’ve taken a risk. Many risks are worth taking because the payoffs can be huge. Penny stocks are one of the riskier assets you can invest in. There’s a chance the rewards can be great, but there’s also the chance that you’ll lose the money you put in.
About 30 years ago, it was unimaginable for anyone to invest in a marijuana company. Now, marijuana stocks trade on some of the world’s major exchanges worldwide. The rising interest in marijuana stocks has also created an interest in marijuana penny stocks.
Marijuana penny stocks trade for a few dollars and even less than $1 in some cases. These equities are cheap to buy into and show great potential for growth. Sure, they can be a bit risky, but everything worthwhile requires some amount of risk. It’s how you diversify the risk within your portfolio that matters most.
Take a look at how Marijuana penny stocks can bring value to your investment portfolio.
Overview: Marijuana Penny Stocks
Marijuana stocks are companies that produce and distribute marijuana products. Marijuana, also known as the cannabis plant, contains 2 main compounds: cannabidiol (CBD) and delta-9 tetrahydrocannabinol (THC). THC is psychoactive, meaning it impacts the mind. THC is the ingredient that gives marijuana users a sense of high or euphoria.
CBD does not affect someone’s mind and has been found to be therapeutic. People report feeling more relaxed and suffering less pain with CBD.
Most marijuana products contain either THC, CBD or both. Both THC and CBD can be consumed as food, drinks, oils and smoking. Hemp, a variation of the cannabis plant, can be used to create a variety of things including rope, textiles, paper and even biofuel.
Before 1996, marijuana use of any kind was illegal across all 50 states. Since then, marijuana laws have become more lenient. First allowing for medical use, and now increasingly for recreational use.
At this time, most states have made CBD or low THC programs legal. However, marijuana remains completely illegal in Idaho, Wyoming, Wisconsin, Tennessee, South Dakota, Alabama, South Carolina and Kansas.
The marijuana market is also growing outside the U.S. Although marijuana is still banned in most countries around the world, it is becoming more tolerated across some major economies.
Medical marijuana has been legal in Italy since 2013. Germany recently legalized marijuana for medical use in 2017. And in late 2018, Canada legalized the drug for recreational use. The success of marijuana companies is dependent on how widespread legalization will be throughout the globe.
Marijuana penny stocks offer the potential for high-growth, which is what attracts most investors. But these are some of the riskier assets you can have in your portfolio. As long as you do your due diligence and balance the risk throughout your portfolio, you should be well-positioned to see the benefits of these stocks.
Best Online Brokers for Marijuana Penny Stock
Marijuana penny stocks are somewhat of a niche investment category. It can be time-consuming to find relevant information about these stocks. Choosing the right broker can help. Take a look at some of Benzinga’s favorites.
Features to Look for in Marijuana Penny Stock
Management: The success of marijuana stocks depends on high levels of growth. One of the best predictors of strong growth is a management team with a competitive business strategy. Management that aims to diversify products and expand operations into international markets will be better positioned. Partnerships and acquisitions are another way to drive growth. Look out for companies that are making strategic moves to cement themselves in the market.
Cost per gram: Companies that are able to reduce their production costs have a distinct advantage. Marijuana companies face heavy competition from black market dealers that are able to keep prices low. Be on the lookout for companies with low costs per gram. And especially ones whose costs per gram are decreasing over time. This will give you a good idea of who is likely to enjoy price advantages in the coming years.
Earnings per share: By looking at a company’s earnings per share (EPS), you can get an idea of that company’s profitability. This is calculated by subtracting preferred dividends from net income and then dividing the difference by outstanding stockholder shares. Keep in mind that you may see a negative EPS for some marijuana companies. Don’t let this put you off.
Many companies in the industry aren’t profitable yet. Take a look at how the company is spending money. If funds are going toward investing and expanding operations, it may be a signal of future profitability.
How to Diversify Your Portfolio with Marijuana Penny Stocks
Marijuana stocks offer enormous potential for growth. But they are not without their share of risk. Marijuana companies face heavy competition and low prices from black-market sellers. Their business models completely depend on the political landscape. If governments decide to roll back on legalizing marijuana or enforce heavy taxes on products, growth will slow.
Consider mitigating risk by diversifying your portfolio. You can do this by holding onto safer assets — like bonds, consumer staples stocks or REITs. In all, marijuana penny stocks can be a valuable contribution to your investments.
For more information about about penny stocks and penny stock trading, visit the U.S. Securities and Exchange Commission at www.sec.gov.
Benzinga's #1 Breakout Stock Every Month
Looking for stocks that are about to breakout for gains of 10%, 15%, even 20% potentially or more? The only problem is finding these stocks takes hours per day. Fortunately, Benzinga's Breakout Opportunity Newsletter that could potentially break out each and every month. You can today with this special offer: