If you’ve ever bought a lottery ticket or asked someone out on a date, you’ve taken a risk. Many risks are worth taking as the payoffs can be huge. Penny stocks are one of the riskiest assets you can invest in. It is possible that the rewards will be significant, but it is also possible that you will lose the money you have invested.
About 30 years ago it was unimaginable for anyone to invest in a marijuana business. Now, marijuana stocks trade on some of the world’s major exchanges. The growing interest in marijuana stocks has also created interest in marijuana penny stocks.
Marijuana penny stocks trade for a few dollars and even less than $1 in some cases. These stocks are inexpensive to buy and have great growth potential. Sure, they can be a little risky, but anything worthwhile requires a certain amount of risk. It’s how you diversify the risk within your portfolio that matters most.
Take a look at how marijuana penny stocks can add value to your investment portfolio.
Overview: Marijuana Penny Stocks
Marijuana stocks are companies that produce and distribute marijuana products. Marijuana, also known as the cannabis plant, contains 2 main compounds: cannabidiol (CBD) and delta-9 tetrahydrocannabinol (THC). THC is psychoactive, which means it has an impact on the mind. THC is the ingredient that gives marijuana users a feeling of high or euphoria.
CBD does not affect anyone’s mind and has been shown to be therapeutic. People report feeling more relaxed and suffering less with CBD. It’s not the same thing that cannabis companies offer, especially considering that the range of cannabis products is quite extensive.
Most marijuana products contain THC, CBD, or both. Both THC and CBD can be consumed in the form of foods, drinks, oils, and cigarettes. Hemp, a variant of the cannabis plant, can be used to create a variety of things, including rope, textiles, paper, and even biofuel.
Prior to 1996, the use of marijuana of any kind was illegal in all 50 states. Since then, marijuana laws have become more lenient. First allowing for medical use, and now increasingly for recreational use. In today’s market, the best marijuana penny stocks for 2020, 2021, and now 2022 represent a wide swath of the industry.
Currently, most states have legalized CBD or low-THC programs. However, marijuana remains completely illegal in Idaho, Wyoming, Wisconsin, Tennessee, South Dakota, Alabama, South Carolina, and Kansas.
The marijuana market is also growing outside of the United States. Although marijuana is still banned in most countries around the world, it is increasingly tolerated in some major economies.
Medical marijuana has been legal in Italy since 2013. Germany recently legalized medical marijuana in 2017. And in late 2018, Canada legalized the drug for recreational use. The success of marijuana businesses depends on the extent of legalization around the world.
Marijuana penny stocks offer high growth potential, which attracts most investors. But these are some of the riskiest assets you can have in your portfolio. As long as you do your due diligence and balance the risk across your portfolio, you should be well positioned to see the benefits of these stocks.
Best Online Brokers for Marijuana Penny Stock
Marijuana penny stocks are something of a niche investment category. It can take a long time to find relevant information on these stocks. Choosing the right broker can help. Take a look at some of Benzinga’s favorite online brokers as you consider investing in top cannabis companies or picking up a US cannabis stock that will boost your portfolio performance.
Features To Look For In Marijuana Penny Stock
Management: The success of marijuana stocks depends on high levels of growth. One of the best predictors of strong growth is a management team with a competitive business strategy. Management that aims to diversify products and expand its activities in international markets will be better positioned. Partnerships and acquisitions are another way to drive growth. Look for companies that are taking strategic steps to establish themselves in the market.
Cost per gram: Companies that can reduce their production costs have a distinct advantage. Marijuana companies face stiff competition from black market dealers who are able to keep prices low. Be on the lookout for companies with low cost per gram. And, especially those whose costs per gram decrease over time. The most expensive marijuana won’t always deliver the best profits and performance, and the marijuana price index doesn’t affect all companies equally. This will give you a good idea of who is likely to benefit from tariff advantages in the years to come.
Earnings per share: By looking at a company’s earnings per share (EPS), you can get an idea of how profitable that company is. This is calculated by subtracting preferred dividends from net income, then dividing the difference by shareholders’ outstanding shares. Keep in mind that you may see negative EPS for some marijuana companies. Don’t let that put you off.
Many companies in the sector are not yet profitable. Take a look at how the company spends money. If funds are spent on investment and expanding operations, this can be a signal of future profitability.
How to Diversify Your Portfolio with Marijuana Penny Stocks
Marijuana or cannabis stocks offer enormous growth potential. But they are not without their share of risk. Marijuana businesses face stiff competition and low prices from black market sellers. Their business models are entirely dependent on the political landscape. If governments decide to roll back marijuana legalization or impose heavy product taxes, growth will slow – a stock of marijuana could become a hindrance instead of an asset.
Consider mitigating risk by diversifying your portfolio. You can do this by keeping safer assets, like bonds, consumer staples stocks, or REITs. All in all, marijuana penny stocks can be a valuable contribution to your investments.
Want to learn more about other low-cost investment options? Take a look at Benzinga’s selection for stocks under $5, stocks under $10 and stocks under $20.
For more information on penny stocks and penny stock trading, visit the United States Securities and Exchange Commission at www.sec.gov.
Spanish version, “Cómo Invertir en Acciones de Cannabis” on ElPlanteo.com.
Continue reading: THE BEST AMERICAN CANNABIS STOCKS