Investing in cannabis stocks is a high growth but high risk market. With growing popularity and states legalizing, cannabis has been at the forefront of the stock market.
The US market is projected to be worth over $22 billion by 2022, however evaluating the murky waters of this high risk market can be tricky, however if done correctly can have great returns.
The growth potential is probably the biggest reason to invest in the cannabis market. With companies going public on the stock exchange, investors are ramping up global infrastructure.
Canada will have a legal, federally regulated cannabis industry on October 17, 2018. Germany also recently legalized medical marijuana. But US markets are projected to eclipse both markets combined by 2022.
Investors caution that potential growth may never actualize in the markets, or that growth potential may already be reflected in the over valuations of shares.
High margins in price to sale ratios are also a reason to be cautious. Currently the top three cannabis companies trading have a price to sale ratio higher than 159, projecting enormous growth potential. Among the three is Canopy Growth at the top.
Again growth potential may be reflected in the over valuations of these shares, it is important to know the company growth strategy.
These growth strategies include their current financial standing, as many cannabis firms have yet to turn a profit. This might seem like a deal breaker, but some of these companies have extensive investment resources and will finance their initial projects.
Canopy Growth is an example of a company investing in an enormous amount of global infrastructure, has yet to turn a profit, but has the financial means to operate for an extended period of time. Aurora is also an investor favorite for these reasons.
It is important to consider the goals of the management team and their track record of success. Digging into the background of the CEOs and CFOs, as well as the company intentions for future investments, partnerships, and overall direction the company intends to head are all important things to consider before making an investment decision.