Exploring Opportunities: A Guide to Trading and Investing in the Cannabis Industry

Are you interested in exploring the world of cannabis investments? As an investor, you may be curious about how to get started in this emerging industry. Here’s what you need to know about trading or investing in the cannabis market.

Firstly, it’s important to understand how the cannabis industry works. This sector encompasses all companies involved in providing marijuana products and services.

Until recently, regulatory restrictions prevented significant market growth. However, as more governments around the world have legalised cannabis use, a mainstream market has emerged.

Cannabis products are broadly categorised as medical or recreational marijuana. Most companies focus on the production and development of medical marijuana, which includes the unprocessed plant or products containing cannabinoids found in the plant.

Medical marijuana has been legalised in several countries, including the UK, Canada, Germany, and Australia. While it is legal in 30 US states, it remains illegal at the federal level.

There are three main categories of cannabis stocks: growers, biotechs, and supply providers. Growers cultivate, sell, and distribute cannabis to consumers and businesses. Due to legal constraints, there aren’t many large players in this space.

Biotechs are dedicated to developing and bringing medical marijuana products to market. Supply providers offer tools and materials needed to grow marijuana, such as light systems, hydroponics, special soils, and fertilisers.

Additionally, many well-known food and beverage companies have announced cannabis-infused products, such as Heineken and Molson Coors Brewing Co. As policies continue to ease around the drug, more types of cannabis stocks may become available to traders and investors.

Before investing or trading in the cannabis industry, it’s important to consider the potential risks and rewards. One of the potential rewards is the potential for outsized returns for traders who can get in on the ground floor and take advantage of the rapid growth that is expected.

In 2019, the global cannabis industry was worth $12 billion, but by 2040, it’s estimated to hit $630 billion.

However, the growth of the cannabis industry is relatively recent, which can lead to valuation risks. Cannabis stocks have increased in price so rapidly that valuations do not necessarily reflect companies’ growth prospects and profitability.

When selecting which type of cannabis asset is best suited to your goals, you can choose between cannabis stocks or cannabis-linked ETFs.

Cannabis stocks are the shares of publicly traded marijuana companies. Popular marijuana stocks include Canopy Growth Corp, Cronos Group, Aurora Cannabis, Tilray Corp, and HEXO Corp.

Alternatively, you can invest in or trade cannabis-linked ETFs, which are baskets of marijuana stocks designed to track the market. ETFs can be a great way to diversify your portfolio, as you’d be getting exposure to a range of cannabis stocks from just one position.

Next, you’ll need to decide whether to invest or trade in the cannabis industry. Investing involves buying cannabis stocks or investing in cannabis ETFs in the hope that their value will increase over time.

With investing, you would put up the full value of your position upfront but would gain shareholder rights and dividends if they are paid.

Trading involves spread betting or CFDs. Spread betting allows you to speculate on whether the price of marijuana stocks, ETFs, or indices will rise or fall, while CFDs involve exchanging the difference in the price of a marijuana asset between the point at which you open and close your trade.

It’s important to remember that each investor and trader will have different financial goals and risk tolerances. While some individuals might not be interested in the volatility of marijuana stocks, others might be more comfortable in higher-risk circumstances.

Do your research and identify which marijuana-linked assets are the riskiest. For example, Canada-based marijuana companies do not face all of the same risks as those within the US industry due to the legal landscape.

You should also consider the potential impact of legislative changes on the industry. If a country decides to legalise cannabis, the industry could experience a significant boost in demand, which could positively impact stock prices.

Conversely, changes to regulations that restrict the use or distribution of marijuana products could have a negative impact on the industry.

Trading the cannabis industry through spread betting or CFDs allows you to go both long and short, meaning you can speculate on whether the price of marijuana stocks, ETFs, or indices will rise or fall. You only need to put down a fraction of the full cost of the position upfront, which is known as margin. This allows you to gain full market exposure with leverage, which can bring the possibility of magnified profits but also magnified losses.

Spread betting and CFD trading are both popular methods of trading the cannabis industry because they offer flexibility and the ability to take advantage of short-term market movements. However, it is important to be aware of the risks involved. With spread betting, losses can exceed deposits, and with CFDs, you may have to pay capital gains tax on any profits you make.

Choose your trading platform Once you have decided whether you want to trade or invest in the cannabis industry and have selected your preferred asset, the next step is to choose a trading platform. There are many online brokers available that offer trading in cannabis-related assets.

When choosing a trading platform, consider factors such as fees and commissions, ease of use, customer support, and the range of assets available to trade. Some brokers may also offer educational resources to help you learn more about trading the cannabis industry and make informed trading decisions.

In conclusion, the cannabis industry offers exciting opportunities for traders and investors looking for new areas of investment. With the potential for rapid growth and the emergence of new cannabis-related assets, it is important to do your research and consider the potential risks and rewards of trading the cannabis industry.

Whether you choose to invest in cannabis stocks or trade through spread betting or CFDs, selecting the right asset and trading platform is key to making informed trading decisions.

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