Picking stocks is an insider’s game that requires sharp due diligence since the management of many of these companies have hurt investors and don’t control their spending.
The cannabis market is off to a strong start in 2021, carrying ample amounts of promise with it. As demand booms, analysts say that 2021 could be a year of consolidation and continued innovation in the cannabis sector. Market activity expects to continue to trend upward, backed by increased access to legal cannabis in the U.S. and abroad.
New investors may want to take notice of the cannabis market and its potential for lucrative gains. Two common options are proving beneficial for numerous stock market participants. Investing in cannabis stocks could be a fruitful effort for wise investors who can pinpoint the next big thing. On the other hand, experts say that exchange-traded funds (ETFs) could provide gains without the same work level for the less savvy investor.
Both stocks and ETFs carry pros and cons investors must consider.
Investing In Stocks Takes Time And Research
Cannabis stocks pique the interest of a growing number of investors seeking an eventual win in the form of legalization. While cannabis is sure to deliver, not every stock will end up a winner. Investors can certainly win with stocks but must be aware of movements in the market and their securities. Those without the know-how could lose their shirt with the wrong moves.
Without staying up on the latest market movements, investors could find themselves in the red in short order. “It’s important to understand the markets in which they operate and how they create value,” said 420 Investor Founder Alan Brochstein.
Investors can look at the company’s performance, as well as its leadership, to gauge the viability of a company.
Michael Sassano, founder and CEO of Somai Pharmaceuticals, has been a private investor for 25 years. He emphasized the importance of a company’s management team. He believes that U.S. MSOs have a leg up over Canadian operations thanks to billions of dollars in investments supporting expansion and development efforts.
“At this point, it is a race to profitability, yet the large investors and mainstream companies have yet to even enter,” said Sassano. He expects asset values to skyrocket going forward.
Investing In ETFs
Instead of investing in a particular stock, some choose ETFs, which are a collection of securities. Often operating on a singular underlying index, ETFs trade daily, acting similar to stocks.
Experts say that ETFs provide investors with the ability to gain exposure to the market without doing such intensive research and analysis that comes with stocks.
“Cannabis is a real asset class, and the smartest way to gain exposure is through a diversified ETF,” said Sassano. He added, “Picking stocks may not yield you the right results as individual companies are not a basket.”
Sassano added several ETFs worth considering, including MJ, YOLO, MSOS, CNBS, THCX and POTX. Not only do ETFs allow investors to gain exposure, but Sassano said they also provide an option that doesn’t require as much stock market expertise as stocks might.
“Picking stocks is an insider’s game that requires sharp due diligence since the management of many of these companies have hurt investors and don’t control their spending,” said Sassano.
Less of a demand but still requiring its analysis, ETF investors have their cautions to consider. Dennis O’Neill, a former investment banker and current president of BioMediCan, discussed an ETF’s track record of investment and the charges associated as prime areas of concern.
“Some focus on just large companies. Others will venture into smaller companies that have more risk and possible reward,” he said.
Outlook For 2021
Experts differed on what to consider the cannabis stock market. Brochstein said that no cannabis stocks are a safe bet due to their high-risk, high potential rewards.
On the other hand, O’Neill said that both stocks and ETFs “should be part of a balanced portfolio,” suggesting that they represent no more than 10% of an overall portfolio.
He broke it down further for those choosing between the two options: “ETFs for people who do not have the time or experience investing in cannabis. Individual stocks for people who have the experience and time.”