Hedging Cannabis Investments: Is Your Cannabis Investment Safe?
Risk is inherent in trading, but big risks often mean big rewards. As the industry maneuvers through changing laws and increasing competition, you may want to ask; is your cannabis investment safe?
You might be wondering if you should hold off on marijuana stock investments. And with good reason. The market is so new, it’s too early to forecast what the years ahead will have in store for a growing cannabis industry.
If demand tells us anything, it is that the people want cannabis. They want it in their food. They want it in their medicine. They want to wear it, shower with it, and grow it in their backyards. The demand is there, no doubt, but the Federal government seems to be dragging its heels to legalize, or at least reschedule it. Even though our constitution was written on hemp, and our first flag sewn together with pieces of hemp fabric.
Now sandwiched between two countries that legalized cannabis, the United States must determine if it will join Canada and Mexico, where many cannabis companies operate from. Or the U.S. can fall behind the lead of a budding industry.
Though this signals that the U.S. will be forced to follow or get out of the way, the current administration has made no clear plans to legalize anytime soon. Despite the fact that market-watchers New Frontier Data estimate that the cannabis industry will grow to $24 billion by 2025 in the United States, and to $74 billion globally as indicated by Grandview Research.
Hedging Your Bets
Early investors of the cannabis market have only experienced a few years of ebbs and flows that cannabis shares bounces between. We’ve already seen some industry giants topple due to rapid expansion they couldn’t grow into. Others have been bought out, while others position themselves to be.
Some people are getting rich off this industry, whether they imbibe is another story. Still, with growing popularity, Pot Stocks are a risky investment, even for seasoned investors. This makes hedging your cannabis investments all the more important for risk management.
Diversifying your investment portfolio reduces risk but only if done the right way. All your investments must function independently of each other. If one is failing, the others must not falter in their performance because of it.
Determining the risk of your investment also means knowing what impacts publicly held cannabis companies the most. Cannabis is a cash crop when it comes down to it so it faces risk of weather catastrophe, crop disease or pest damage; it depends on laws both locally and globally, and restrictions unique to a company’s place of operation.
Bi-Partisian Support Eases Market Hesitancy
Ultra-conservative Republican Senator John Boehner now owns shares in cannabis and has quickly changed his tune on legalization once he realized how much revenue states like Colorado were reaping in.
Even Andrew Cuomo, New York’s elitist anti-smoking Governor recently signed legislation making marijuana legal in the Empire State. Until the dispensaries open up; he tells New Yorkers to go to neighboring Massachusetts, Vermont or Pennsylvania to buy the goods.
Obviously the times they are a’changing.
But experts on the exchange still aren’t buying as quickly as some would like. With a short history of trading, investors can’t reasonably calculate the risk associated with cannabis stock. With no patterns to study, there is no projection of where the shares may rise or plummet to. Everything is riding on the Feds legalizing what many states have taken it upon themselves to do. Two major variables that affect confidence in investors.
Is It Worth Investing In Cannabis?
People invested in big oil companies, pharmaceuticals and alcohol would emphatically say no, but the industry lobbyists have been seducing legislators long enough. Consumer demand is shifting to environmentally friendly products and services that people feel good about. They are making investment choices that align with their belief systems.
Renewable energy, alternative plastics, and biofuel investors would enthusiastically say “yes, invest in cannabis!” Hemp as an agricultural commodity is making a 100 year come back after decades of unwarranted prohibition and making up for the lost time.
Anything plastic can do, hemp can do better. The carbon dense fibers are stronger than steel and hemp can be used as biofuel to help clean the environment, not just reduce emissions. Hemp is carbon negative, meaning it sucks up carbon pollutants and stores it in its fibers, making it the perfect material to build everything from cars to the gas that runs them.
However the marijuana market remains extremely volatile, and risk is high as a kite. Although well more than half the states have legalized or decriminalized cannabis in some form or another, medicinal or recreational, that still leaves too many variables for investors to feel good about hedging their investments.
Many investors are holding off on buying marijuana stocks because they think all the hype is going to wear off soon. The buzzing new market is new and exciting, attracting first time investors who are in it for the novelty and will later invest elsewhere when the next new trend arises.
With Federal legalization looming, there lies the potential for a large tax burden the industry has not seen yet. This could cause demand to drop with share values. If prices are too high, people won’t buy it. If the tax burden is too large to be sustainable we’ll see cannabis companies start to fold under the government’s thumb.