How to Start Investing in the Legal Cannabis Industry

Recreational cannabis in Canada has been a hot topic of conversation since Prime Minister Justin Trudeau first promised his government would legalize its use. But some of the biggest news stories don’t revolve around people consuming recreational cannabis. Instead, they’re about the stock prices of publicly traded licensed producers.

It might seem crazy not to at least consider investing in the legal cannabis industry. However, before doing so, there are a few things investors should consider:

There’s still a lot of uncertainty

Nobody knows what the real, long-term demand for cannabis will be post-legalization, or which companies will survive and prosper. Investing in cannabis stocks is still risky. While there’s a chance you can make great gains, you could also lose everything. Don’t invest with money you can’t afford to see go up in smoke.

Not all cannabis producers are the same

There can be a significant difference in the consumer products each company creates, whether it be dried cannabis flowers or oils. There are hundreds of strains of cannabis, each with a slightly different result when utilized—and each of these varieties has some very interesting names. For example, Girl Scout Cookies and Purple Kush are different strains with different THC levels, flavors, and effects. While it’s too early to know if public tastes will swing one way or another, consumer preferences could be an important factor to consider when investing in cannabis.

Do your research

When investing in emerging industries such as cannabis it’s very easy to get caught up in the excitement instead of thinking through your investments. Even if you get a hot stock tip from your aunt or your mechanic, or hear exciting rumors (such as the one that licensed producer Aurora was in talks for a partnership with Coca-Cola) you should still do your research before you buy. Timing the market is essentially impossible, but if you do your research, you can react more confidently to short-term price fluctuations in the market and be less likely to get caught up in the emotional part of investing.

There are several ways to invest in the legal cannabis industry

The news reports typically only speak about individual stocks, so people often choose to invest in specific companies. However, if you don’t want to risk your entire investment on the fate of a single company, you can invest in an exchange-traded fund (ETF) that holds stock in several cannabis companies at once. There are several ETFs in Canada that focus on the cannabis industry.

You don’t have to invest in cannabis directly to get in on the action

As the value of cannabis stocks have grown, they have become an ever-larger part of the stock market as a whole. Purchasing an investment such as an ETF that tracks a major stock exchange can be a way to gain access to some of the growth potential offered by cannabis stocks.

Ultimately, cannabis is likely a long-term viable industry, but there are no guarantees. You might make some impressive investment gains, but as the old saying goes, you should never invest money you can’t afford to lose.

Dylan Dee is the community manager for Lift & Co. Lift & Co passionate about connecting cannabis experts with bud beginners.

Disclaimer: A mention of a stock, ETF, or other investment does not constitute a recommendation to buy. Consult a certified fee-only financial planner before making any investment decisions.