How to buy, trade and invest in cannabis, weed or marijuana stocks and shares
So you want to buy cannabis stocks? Buying cannabis stocks is a hot topic at the moment. Not quite as much as crypto trading – but at least there is an underlying asset.
But, if you want to get involved in the wackly world of baccy stocks how do you trade and buy cannabis stocks?
Marijuana stock plays aren’t a new thing, they’ve been around for a while but mainly in the form of spivvy penny shares. You know, the type of stocks where you pays your money and takes your chance. You buy some and are either going to lose all your money or make a bucket load.
I’ll resist the temptation to use puns like, “could these stocks go sky high?” because quite frankly they’ve all been used by everyone else already.
However, we are guilty of a lit puns too, cough-cough…
Where to buy cannabis stocks?
Here is a quick rundown of the best brokers to buy cannabis stocks.
Obviously, we’re not recommending these stocks or providing investment advice here. Just highlighting where you can buy cannabis stocks. If you wanted…
Best brokers for investing and trading cannabis stocks
Cannabis stocks are becoming more readily available on platforms like IG, Saxo and eToro. Read our reviews to find out more or read on for screenshots and the risks and opportunities involved in trading marijuana.
Spread Betting on Cannabis with IG
If you want to job about in individual cannabis stocks take a look at IG. A quick search on their platforms shows around 27 cannabis stocks that you can trade on CFDs or through spread betting.
Marijuana ETF investing through Saxo
If you want access to a cannabis ETF, Saxo offer Horizons Marijuana Life Sciences Index ETF which is a basket of stocks with exposure to cannabis.
Cannabis CFD trading through eToro
Or if you are of the social trading persusasion eToro is giving investors the chance to bet on the rapidly growing medical marijuana market via it’s CannabisCare CopyPortfolio
What are the additional risks when you buy cannabis stocks?
- Firstly, most cannabis stocks are listed abroad so make sure you either hedge your currency exposure or trade in your local currency. Which you can do with spread betting for example.
- Secondly, regulation is a major factor and changes will have a significant impact on cannabis stock prices.
- Thirdly, it’s just like any other pharma stock – they are subject to high volatility
Below is a recent video from Bloomberg on “Where to Find Opportunities in Cannabis Stocks”
What are the Opportunities And Risks In The Cannabis Sector
For this section, we turn to our in-house expert analyst, Jackson Wong Ph.D.
Winds of Change Lifting the Cannabis Sector
Once in a while, a hot new sector bursts into life and captures investors’ imagination. Remember those internet stocks twenty years ago? Or those raging crypto-currencies a year ago, particularly Bitcoin? More recently, a new such sector has emerged: Cannabis stocks.
What are cannabis stocks?
Mainly, these are listed companies engaging in producing or selling cannabis, a type of drug that is used for medicinal and recreational purpose. It is popularly known as marijuana or weed.
‘Drug?!’ you may wonder. Yes, the drug that Elon Musk was reportedly smoking during his podcast interview recently, which caused a huge drop in Tesla’s share price overnight (see picture below).
In many countries, cannabis is still illegal. Many governments around the world – including the UK – assume these drugs are addictive and dangerous. Just this week, a front-page headline in The Times (September 12, 2018) read: ‘Policy catch 11-year-olds being used to sell (cannabis) drugs.’
Why medical marijuana stocks are so popular
If cannabis is so controversial, why are cannabis stocks popular these days? Because legalising cannabis is becoming a trend. Uruguay, Canada and some US states are now opening public access to cannabis. With this change, people are expected to spend more money buying the drug. Some estimated that legal cannabis market will triple from the current US$10 billion to $30 billion in five years time*. Very good prospects indeed.
In fact, the sector is so new and exciting that investors are willing to bid aggressively for any cannabis stocks. Canopy Growth (Can:WEED!) and Aurora Cannabis (Can:ACB) are trading at valuation that are on par with internet stocks in the nineties. In fact, WEED is so hot that its share price rallied from $2.5 in 2016 to $75!
The question now, at least for new investor/traders unfamiliar with cannabis stocks: Should you join the party?
To answer this question, I have devised a small flexible framework for analysing ‘Hot Sectors’.
Framework For Analysing ‘Hot Sectors’
Before you consider buying these weed stocks, ask yourself three questions:
- Do you know a lot about the sector? Meaning, do you have some form of ‘knowledge edge’?
- Why do you need to buy the sector? In other words, do you really need to participate now?
- What is the sector priced at now? Depressed, normal, or high?
To see this more clearly, you should place the sector in the Sector Cycle below and assess the risk-reward prospect.
Sector Cycle – Five Stages
Stage 1: Dormant – Few know about the sector. It is virtually non-existent. Public knowledge is low. Alternatively, it is a ‘sleeper’ sector. Boring, few exciting prospect. A sector could stay here for many years.
Stage 2: Catalyst – New technology, changed laws, or shifting political landscape becomes the market catalyst that incite changes. Prospect becomes better.
Stage 3: Smart Money/Insiders move in – Astute investors start to place bets in the sector, via venture backing, loans, or new companies. This stage can occur over some years.
Stage 4: Public Participation – Once the trend persists for a while, media starts to take note. Also, early investors reaped huge gains. Articles, books, videos, internet, and interviews amplify these juicy returns – and investor greed. Public Joe became a ‘convert’ and buy.
Stage 5: Hysteria, Bubble, and Collapse – Hysteria sets in. Prices go ballistic. The sector becomes a bubble that lasts for a few months (even a couple of years). When the last buyer is in, the sector implodes.
Where do you the cannabis sector is right now? I suspect between 4 and 5. Why? Because when a stock goes up by 30x in two years, you know that many investors would be looking to cash out. At these high valuation levels, the sector is ‘priced for perfection’. In other words, any negative factor – such as lower-than-expected revenue growth – could cause a massive drop in share prices.
Moreover, many cannabis firms are investing heavily to position themselves strategically in the sector. You can expect equity dilution, higher balance sheet leverage, and low dividends. Also, who will survive in the long term? Nobody knows right now.
Is investing in cannabis stocks right for you?
Cannabis is a new hot sector. Its prospect is driven by a growing market (due to a changing legal landscape). But note this, higher cannabis demand brings about higher cannabis supply. At some point, a tipping point will cause street prices to plummet as the sector becomes saturated. Are we there yet? Perhaps not. Thus, it is quite likely that the sector may remain popular for the time being.
Turning to risk-reward prospect of buying the sector at the moment. If you know next-to-nothing about the sector but still want to trade NOW when the sector is trading at high valuation levels – better set clear rules and follow them. It is a volatile sector. Huge gains and severe drawdowns are equally possible. After all, it is a novel sector filled with uncertainties.
*Investor Chronicle (September 7, 2018)
Good Money Guide Featured Providers
|IG||Saxo Capital Markets||Pepperstone||ETX Capital||CMC Markets|
|Visit IG||Visit Saxo||Visit Pepperstone||Visit ETX Capital||Visit CMC Markets|
Looking for an institutional broker? Compare prime brokers here
Richard founded the Good Broker Guide (now Good Money Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.