Investing in Cannabis and Mitigating Risk

Investing in the Cannabis industry might at first glance seem too risky. Given the fastest growing industry in the world only became even somewhat legal within the better part of the last two decades, it’s understandable. And with the looming regulations hovering overhead that could most charitably be described as undetermined; it feels unsafe.

However, the irony here is amusing in that the plant itself is essentially risk-neutral. Its applications exist dynamically within the medical sector, textiles, tech, energy, agriculture, and as tough as it is to say—the vice sector. While its growth certainly depends on resources whose availability could change given swings in global climate, weather, and proper allocation; the plants growth and its use are nearly ubiquitous.

I’m not going to pretend to understand any specialized level of behavioral heuristics, but it seems foolish to believe the growing sympathy and desire for it, or at least knowledge about it, would be reversed. So investment really just boils down to applying the same disciplined approach of any strategy to Cannabis.

To start, there are Cannabis ETFs. ETFs, or exchange traded funds, can be a great way to mitigate risk because they’re not set up for single stock sales or purchases. Instead, they track and attempt to mimic the performance of a given group of assets, a bond, a commodity, or an index. However, while an increasingly popular set of tools because of higher liquidity and a lower fee structure, they can also be a great way to suck dumb money out of the market by “diversifying” in a class of assets that might all underperform. So obviously, do your research.

Of course, if individual stock selection sounds more appealing, there are some guiding indicators to look for in determining potential strength of a company. In addition to thoroughly studying their fundamentals, patent ownership or pending patent ownership is an indicator that a company is planning ahead and protecting its intellectual property. Patents in this industry are surprisingly very possible, ranging from process development to genetics, and will become a defining characteristic in a company’s operational health as we move towards full legalization.

Avoiding generically branded companies is also a sound piece of a strategy if you’re looking into individual stock selection. These are your “Canna-this” or “mari-that” brands. Companies without strong brand recognition stand little chance when the global industry is inevitably formed.

The abundance of industrial facets that Cannabis can reach is astounding. Investing in Cannabis at this moment isn’t really investing in Cannabis. It’s investing in biotechnology, pharmaceuticals, textiles, agriculture. This isn’t a chance to invest in Apple in the 80’s. This is a chance to invest in the resources that go into making every electronic device on the planet. Except in this case, they’re renewable. And this resource can be used for far more than electronics.

This is in no way providing financial advice or recommendations. Consult a professional advisor and always consider the risks before investing.


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