Cannabis stocks are typically a risky investment. Luckily, there are alternatives.
Marijuana ETFs (exchange-traded funds) are a great minimally-risky way to get into the medical cannabis world without having to invest in potentially dangerous marijuana stocks. There are definitely pros and cons to both, of course.
Let’s dive into their main differences to help you decide which marijuana investment opportunity is right for you.
Stocks are, of course, the traditional way to invest in anything. But when it comes to cannabis investing, there are a few pros and cons that set it apart from other investments.
Pros of Cannabis Stocks
By 2020, it’s expected that the marijuana stock market will reach nearly $32 billion. The United States alone will hit a majority of it, around $24 billion.
The cannabis industry is expected to become safer as the market settles down and prices for stocks stabilize.
Cons of Cannabis Stocks
Cannabis stocks peak during very specific times. These include when the state of California officially voted to legalize cannabis in January 2014, when California’s official legalization took place in January 2018, and when recreational cannabis use became fully legal in Canada in October 2018. The only way to make money from investing in marijuana is to buy when the stocks are down. Unfortunately, it’s difficult to do this without a pro around to help.
As it stands, marijuana is still illegal in the United States at a federal level. It’s unclear when this will change and as such the market is volatile in a negative way.
Valuations in a majority of pot stocks are extremely high and many of the companies involved aren’t profitable as of yet.
Cannabis Exchange-Traded Funds
If you’re worried about potentially losing out on marijuana stocks, a fine alternative would be marijuana ETFs. To summarize, a cannabis ETF is a fund that tracks a load of different names that are related to the marijuana industry. It’s different than, say, a film ETF would track film production companies or a clothing brand ETF would track a portfolio of clothing brand outfits.
Still, this method of investing isn’t perfect and certainly has its pros and cons.
Pros of Cannabis Exchange-Traded Funds
With ETFs, you don’t have to risk investing in one stock but can still benefit from the growth of a specific sector. And the weed sector is definitely growing.
If you want an easy introduction to investing in marijuana, ETFs are a simpler way to do it.
ETFs boast small but pleasant dividends.
ETFs have had pretty massive growth spurts in the way of popularity.
Many of the current marijuana ETFs have exploded in size and have a hefty fund flow.
Cons of Cannabis Exchange-Traded Funds
At its core, marijuana ETFs pretty much guarantee that there won’t be as much of a profit compared to the best weed stocks out there.
Many banks are a bit hesitant to back ETFs in the marijuana industry, and ETF assets have to be in custody with the American bank that keeps the underlying securities.