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How to Invest in Cannabis Stocks

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Despite a massive slowdown in cannabis funding and stock price growth, with many of the largest players in the space largely under-performing the wider market, investing remains hot. In the last two years, the marijuana industry has seen more than $26 billion in funding deals and M&A.

Beyond the figures, marijuana-related companies have really reached the mainstream, with several big ETFs trading on major stock exchanges. Among them, the following trade on the NYSE: the ETFMG Alternative Harvest ETF (NYSE: MJ), the AdvisorShares Pure Cannabis ETF (NYSE: YOLO), the Cannabis ETF (NYSE: THCX), and the Amplify Seymour Cannabis ETF (NYSE: CNBS).

Further evidencing the mainstreaming of cannabis are companies like weed grower Cronos Group Inc. (NASDAQ: CRON) and cannabinoid-based biotech GW Pharmaceuticals PLC- ADR (NASDAQ: GWPH) listing on the Nasdaq, Canopy Growth (NYSE: CGC) trading on the NYSE, and Acreage Holdings (OTC: ACRZF) going after Super Bowl ads and getting political big guns like John Boehner and Bill Weld on board as advisors.

Marijuana Stock Movers

Gainers

Session: Oct 21, 2020 4:00 pm – Oct 22, 2020 3:59 pm
Symbol Open Close Change Change % Volume
Buy TLRY Stock – Trade for Free TLRY
Tilray
6.45 6.82 0.37 5.74% 10.58M
Buy ARNA Stock – Trade for Free ARNA
Arena Pharmaceuticals
76.01 80.34 4.33 5.69% 49.67K
Buy GRIN Stock – Trade for Free GRIN
Grindrod Shipping Hldgs
3.86 4.07 0.21 5.31% 19.60K
Buy CGC Stock – Trade for Free CGC
Canopy Gwth
19.51 20.30 0.79 4.04% 8.31M
Buy VFF Stock – Trade for Free VFF
Village Farms Intl
5.26 5.44 0.18 3.42% 3.07M
Buy CRON Stock – Trade for Free CRON
Cronos Group
5.89 6.06 0.17 2.88% 3.28M
Buy SOL Stock – Trade for Free SOL
ReneSola
3.64 3.72 0.08 2.19% 1.42M
Buy ZYNE Stock – Trade for Free ZYNE
Zynerba Pharmaceuticals
3.57 3.63 0.06 1.68% 14.98K
Buy MJ Stock – Trade for Free MJ
ETFMG Alternative Harvest ETF
11.41 11.60 0.19 1.67% 73.05K
Buy YOLO Stock – Trade for Free YOLO
AdvisorShares Pure Cannabis ETF
12.06 12.23 0.17 1.41% 74.73K
Buy CODI Stock – Trade for Free CODI
Compass Diversified Hldgs
17.74 17.97 0.23 1.29% 17.06K
Buy BE Stock – Trade for Free BE
Bloom Energy
16.39 16.60 0.21 1.28% 6.15M
Buy SPY Stock – Trade for Free SPY
SPDR S&P 500
342.65 344.50 1.85 0.53% 46.13M
Buy ESE Stock – Trade for Free ESE
ESCO Technologies
87.84 88.26 0.42 0.47% 42.01K
Buy SMG Stock – Trade for Free SMG
The Scotts Miracle Gro
156.29 156.95 0.67 0.42% 20.41K
Buy GENE Stock – Trade for Free GENE
Genetic Technologies
3.40 3.41 0.01 0.29% 90.28K
Buy ACB Stock – Trade for Free ACB
Aurora Cannabis
4.84 4.85 0.01 0.10% 9.40M

Losers

Session: Oct 21, 2020 4:00 pm – Oct 22, 2020 3:59 pm
Symbol Open Close Change Change % Volume
Buy WRLD Stock – Trade for Free WRLD
World Acceptance
111.38 103.97 -7.41 -6.66% 95.02K
Buy MBII Stock – Trade for Free MBII
Marrone Bio Innovations
1.26 1.20 -0.06 -4.77% 83.52K
Buy NEPT Stock – Trade for Free NEPT
Neptune Wellness Solns
2.04 1.95 -0.09 -4.42% 2.29M
Buy EAST Stock – Trade for Free EAST
Eastside Distilling
1.32 1.28 -0.04 -3.04% 69.75K
Buy NTEC Stock – Trade for Free NTEC
Intec Pharma
0.23 0.23 -0.01 -1.99% 1.28M
Buy TER Stock – Trade for Free TER
Teradyne
92.07 90.96 -1.11 -1.21% 1.72M
Buy MXC Stock – Trade for Free MXC
Mexco Energy Corporation Common Stock
5.61 5.57 -0.04 -0.72% 37.27K
Buy PMD Stock – Trade for Free PMD
Psychemedics
4.38 4.35 -0.03 -0.69% 6.07K
Buy GHG Stock – Trade for Free GHG
GreenTree Hospitality Gr
13.64 13.57 -0.07 -0.52% 36.24K
Buy YCBD Stock – Trade for Free YCBD
cbdMD, Inc. Common Stock
2.31 2.30 -0.01 -0.44% 31.28K
Buy HEXO Stock – Trade for Free HEXO
HEXO
0.76 0.76 0.00 -0.43% 3.34M

While smaller companies have delivered astronomic returns (and losses) in the past few years, more established ones have been performing steadily, in spite of the volatility inherent to the industry.

Still, it’s hard to hash out the good companies. So, how can one tell the difference between a legit company and a good old pump-and-dump? 

How to Invest in Cannabis Stocks

At Benzinga, we strive to keep readers up to date with the latest news, stock picks, and expert commentary. But, as we continue to get the question about how you can invest in marijuana stocks, we’ve decided to put a brief guide together for you. Before moving on, it’s important for readers to understand that investing in cannabis is not limited to growers or retailers.

There are numerous companies providing ancillary services to the industry, as well as many derivative plays, like pharma and biotech companies making cannabinoid-based drugs and service/product providers that used to operate outside the marijuana industry but have gotten on board since legalization.

The Over-the-Counter Issue

While multiple states in the U.S. have legalized cannabis for either recreational or medical uses, allowing companies to thrive, the plant is still illegal on a Federal level – classified as a Schedule I drug by the DEA. This has made it difficult for most companies to get listed on the Nasdaq or the NYSE.

Seeking alternative avenues to raise capital, many businesses have gone public in Canadian exchanges, while others have done so by trading on over-the-counter U.S. exchanges. This means that many publicly traded cannabis companies are not subject to the same level of scrutiny that major exchanges and the SEC impose — although those trading on the TSX and CSE  are subject to heavy scrutiny.

“The over-the-counter exchanges present challenges. They’re not taken as seriously as the bigger exchanges, and they also allow for a greater degree of latitude in terms of the quality of the company that will trade on them. As a result, many of the companies (…) that have something to do with cannabis probably shouldn’t be there. They got there because entrepreneurs thought it was the only way they could get access to capital; there was somebody that had a publicly traded vehicle that seemed like it would be a good fit,” Leslie Bocskor, investment banker and President of cannabis advisory firm Electrum Partners, told Benzinga.

Having said this, he added that not every OTC or penny stock is to be avoided at all costs. “There is a prejudice against low priced stocks that I think we need to get away from as an industry and start looking towards reverse splitting our stocks, having fewer numbers of shares and higher prices because the optics on it are better,” Bocskor voiced.  

It takes a greater effort to read and comprehend the SEC filings, but the effort is worth it, as these give a more complete perspective of the fundamentals. Also, if the company doesn’t file with the SEC, you should probably not pay attention to it.

Alan Brochstein – 420 Investor

420 Investor Alan Brochstein seems to differ on this point. “It’s extremely important not to rely solely upon company press releases, as these are typically positive spins,” he says. “It takes a greater effort to read and comprehend the SEC filings, but the effort is worth it, as these give a more complete perspective of the fundamentals.

Also, if the company doesn’t file with the SEC, you should probably not pay attention to it,” he suggests. Take a look at Alan Brochstein’s 420 Investor course, where he shows you his real marijuana portfolio

How to Hash out the Bad Weed Stocks

So, we’re still faced with the same question as we were a few paragraphs ago: how does one pick good cannabis stocks and avoid bad ones? While it is always recommended that retail investors do their own due diligence, going over hundreds of filings and corporate documents can be hard and time-consuming.

Moreover, most people usually don’t have access to the resources needed to make an informed assessment of a company. But there are options. One of them is investing in ETFs like the ones mentioned above: Horizons Marijuana Life Sciences Index ETF and the ETFMG Alternative Harvest ETF.

These instruments make it easy to invest in cannabis stocks that have already been pre-selected by teams of analysts who’ve conducted the necessary due diligence and decided to include certain companies in these ETFs.

Another option for those looking to build out their own portfolios is recurring to investment advisors and stock pickers like Alan Brochstein or Jeff Siegel of Green Chip Stocks. “A lot of the Canadian cannabis stocks are quite overvalued right now,” Siegel warns. “I’m telling my readers to start focusing on some US cannabis stocks, as this is the next big market. Companies like MariMed (OTC: MRMD) and Innovative Industrial Properties (NYSE: IIPR) are doing quite well as the US cannabis market becomes more attractive.” Please note that these are examples; not recommendations.

The Seven Steps to Retail Investing

So, to make things simpler, here’s a list of seven steps you should be taking when investing in cannabis stocks – or any other sort of security, for that matter.

Step 1: Research the company

Always start by researching the company or companies you’ll be investing in. Check SEC filings and other documents required by diverse regulatory agencies.

Also, read the latest news on these companies in site likes Yahoo Finance and Benzinga, and get a feel for the market sentiment using Twitter or Stocktwits.

Step 2: Determine the amount to invest

As a rule of thumb, never invest more than you can afford to lose. While good research will often lead to strong returns, this will not necessarily be the case. Stocks are volatile and contingencies sometimes unpredictable.

In relation to this point, Brochstein says, “I find many people place too much confidence in just one or two ideas. In a start-up industry, which is what legal cannabis is in many ways, it’s not easy to pick the winners. If you go back to the late 1990s, a lot of the companies that many expected to be winners didn’t even survive three years. My longer-term focused model portfolios typically have a dozen names in them.”

Step 3: Decide on your timeline

Deciding on when to buy and when to sell is crucial. Try and figure out what your thresholds are beforehand. So, for instance, establish a rule: “if the stock falls below X or surges above Y, I’ll sell.”

Step 4: Pick a broker

Once you’ve gone through the initial steps, you’ll be ready to actually buy your shares. You can go old-school, with a brick and mortar broker like Scottrade or sign up for an online broker such as TradeStation or TD Ameritrade. Both options will allow you to buy and sell stocks once you’ve registered and funded your account.

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Get started securely through Webull’s website
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Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
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Pros
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  • No account maintenance fees or software platform fees
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  • Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Does not support trading in options, mutual funds, bonds or OTC stocks
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Get started securely through TradeStation’s website
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1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

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  • Advanced traders
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Step 5: Buy the stock

This step may sound self-explanatory, but it’s a bit more complex than it seems.

“There are generally two types of ‘buy’ orders: market order and a limit order. A market order will execute the purchase at the present market price, while a limit order will only execute if the price falls at or below the limit price. Although a limit price might give an investor a lower price of entry, there is no guarantee that the limit order will execute,” Benzinga’s Thomas Rudy explains.

Step 6: Sell the stock

Once you feel you’ve generated enough returns from a stock, it’ll be time to sell. Again, you can sell the stock with a market order or a limit order. Use your proceeds to reinvest or just spend them. Life is meant for living!

Step 7: Check out Benzinga’s extensive cannabis coverage

Successful trading requires information and active engagement. What will help you achieve this? Benzinga’s Cannabis Newsdesk. Benzinga’s Cannabis Newsdesk will keep you up to date with the latest news on cannabis, hemp, and related businesses, as well as provide you with timely analysis of micro, macro and equity markets.

Trading Around a Core

One of the processes that have helped Brochstein perform well in his model portfolios has been what he likes to call “trading around a core.“This strategy takes advantage of the inherent volatility in these stocks, The way it works is that you sell incrementally when the stocks are rallying or buy incrementally when the stocks are declining,” he explains.

“It’s important to make sure that the position deserves to be a holding, but if you are confident in the long-term prospects for the stock, varying your exposure can allow you to ‘buy the dip’ or ‘sell the rip’ and not get left on the sidelines or get buried if the stock moves higher after you trim your position or lower after you add to it.

To be real clear, if you go ‘all in’ on a stock and make it 50% of your portfolio, what are you going to do if it drops further? If you sell out of what you think is a great long-term holding because it has reached a level you didn’t expect, will you then be willing to pay more to buy it back in the future if it never falls?”

Spanish version, “Cómo Invertir en Acciones de Cannabis” on ElPlanteo.com.

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