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Whether you are thinking of high-value stocks or penny stocks, here are a couple of considerations that should advise your decision to invest or not to invest in marijuana stocks.
The marijuana industry appears to have been beaten down in October. A logical explanation would be that cannabis companies have been investing heavily in equipment that could spur future revenue growth.
When answering the question, should you invest in marijuana stocks, there are several things to keep in mind. The most important is your experience in the stock market. Your risk appetite is another key consideration.
Like any other stock, you can easily get wiped out if you do not exercise due caution and carry out prior due diligence. On the flip side, it is easy to make a fortune from the cannabis market, which is projected to hit $73 billion by 2027. The trick is to hedge your risks while maximizing your earning potential from lucrative pot stocks.
So, to answer whether you should invest in cannabis stocks, yes, it is a good idea.
If the Biden-Harris administration legalizes cannabis at the federal level, we will expect to see massive growth in the industry. This will be a great chance to get into a buy position in cannabis companies. However, it is not prudent to jump head on into the market before carrying out your due diligence.
The first thing to look at are the fundamentals of the company whose stocks you are looking to buy. You want to establish the longterm profitability of the company.
Fundamentals For Cannabis Stocks
The cannabis industry is exposed to volatility due to the fluidity of the laws governing the sector. Fast moving stocks present a lucrative trading opportunity for those looking to scalp the market. If you have an insatiable appetite for risk then you may perharps thrive as a scalper.
However, adopting a longterm approach will allow you to make the most of the projected massive growth of the market. Below is a rundown of what the fundamentals of a cannabis company represent:
The Management Team
A management team with a previous track record of success influence the long-term value of marijuana stocks. At the same time, weak management is an indicator of poor long-term performance despite present positive financials.
It is granted that some marijuana stocks will do well while others will flop. The management team, which comprises the CEOs, finance managers, and other top executives making pivotal decisions for the company, is the best indicator of the long-term performance of the cannabis stock.
The Growth Potential
As a cannabis investor looking for long-term gains, you should consider the company’s growth potential. Scrutinize the business strategy of the company, with the help of a financial expert. Look at the niche market and the existing competitors. Are there any solid indications that this company will succeed in the long run? How big is the target market? As an investor, you should have a long-term horizon for your portfolio which could run for up to a decade.
The Financial Status
When looking at a company’s financials, there are two primary things that you should look at. This is the cash flow if the company and the stock valuation. Here is how to do that:
1. The Company Cashflow
Look for red flags in the company’s balance sheet. What are the major expenses of the company and do they exceed the income? What are the costing structures and do they make financial sense? How does the balance sheet of the company look like compared to those of the competition? Is the company profitable and if not are there signs that the company will achieve profitability in the near future?
2. The Marijuana Stock Valuation
Based on historical valuation, consider the stock valuation, which should give you a basis for comparing the value of different cannabis stocks.
The factors mentioned above should help you decide if and when to invest in cannabis stocks.
Keep checking this space for a sequel: how to invest in cannabis stocks and which marijuana stocks could make you rich in 2022. This will lay down the principles for choosing cannabis stocks to invest in and how to go about that.