How to invest in cannabis stocks

Cannabis stocks have had a meteoric rise following new legislation, although the buzz around the stocks has been cooling of late.

However, the sector still has the potential to exponentially rise even if it faces a number of headwinds.

How to invest in cannabis

There's more than one way to invest in cannabis.

• Australian cannabis stocks. This means buying stocks on the Australian share market in cannabis companies or companies that have cannabis exposure.
• International cannabis stocks. Some of the biggest cannabis companies are listed on stock exchanges in overseas markets such as the US or Canada. It's possible to invest in these if you use a broker that offers global stocks. Click on the "global" list above to see some of these stocks.
• Cannabis ETFs. ETFs contain a bundle of stocks, usually hundreds, and these often track an index of stocks. There are around 6 cannabis ETFs listed in the US; to date, there are no ASX-listed cannabis ETFs.
• CFD trading. You can trade cannabis stocks, ETFs or indices using CFDs. CFDs are contracts that allow you to make money on the price movements of an underlying asset, such as a share or commodity. Warning – these are complex products best suited to experienced traders.
• Copy portfolio. Share trading app eToro has a pretty neat portfolio of cannabis stocks that you can invest in. These are called copy portfolios and there are a bunch of investment themes you can track. To check them out, click on eToro's link in the table below.

How do I buy cannabis stocks?

1. 1. Choose a share trading platform. If you're a beginner, our table below can help you choose.
   2. Open your account. You'll need your ID, bank details and tax file number.
   3. Confirm your payment details. You'll need to fund your account with a bank transfer, debit card or credit card.
   4. Find the shares you want to buy. Search the platform using the stock ticket code and buy your shares.

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Cannabis products

While smoking weed is perhaps the best-known use of cannabis, there are many types of businesses that are set to benefit from the growing sector. In Australia and other countries, legalisation of many of these products is still new and, in some cases, still underway. These include the following:

• Medicinal products. Medicinal cannabis is used in Australia for the treatment of cancer pain, epilepsy, palliative care, chemotherapy nausea, neuropathic pain, anorexia and neurological conditions.
• Science and research. Recent policy changes mean that cannabis may be cultivated for both scientific and medicinal reasons in Australia.
• Recreational use. Marijuana as a recreational drug is still illegal or restricted in most countries and in some cases carries serious punishment. However, legalisation is starting to occur in parts of the US and in all of Canada. It's consumed to achieve feelings of relaxation or euphoria – however, there are also a number of possible side effects.
• Food products. Hemp is used as an ingredient in a range of products, including cooking oils, snacks, protein powder, cooking flour and more. The sale of hemp food products in Australia was legalised in 2017.
• Building materials. Hemp is used in insulation and building construction materials and has several names, including hempcrete, hemp masonry and hemplime.
• Clothing. Hemp is broadly recognised as one of the most sustainable materials available in the manufacturing of clothing.
• Beauty products. Hemp is commonly used in various health and beauty products, such as moisturisers, lip balm, makeup and skin oils.

Risks

Despite the large opportunity, the sector has plenty of risks investors need to be wary of before investing.

• Speculative bet. The sector is still emerging. It's a new industry with marijuana only being used beyond medical purposes since 2012. As such, most of the companies are small caps, which means they are likely to have large share price swings as well as being traded less often. As such, they are more speculative than large caps.
• Limited investors, especially from large institutions. While the sector is growing, it certainly doesn't have the mainstream adoption of much of the market.
• Valuation risks. Given the size of many of the stocks and potential growth being unknown, it's harder to valuate a fair price for these stocks.
• Dilution risks. Cannabis stocks are still controversial and have challenges that are unique to the sector. As such, investors may face the risk that the companies they own have fewer ways to raise money other than through issuing more shares. This could mean the value of your ownership falls.
• Commodity risks. Just like all other commodities, cannabis is a crop. Some years, its value will be higher; other years, it will fall. This risk can be avoided by not investing in the producers themselves.

Written by

Kylie Purcell

Investments analyst

Kylie Purcell is the senior investments editor and analyst at Finder. She has completed a Certificate of Securities and Managed Investments (RG146) and specialises in investment products including online brokers, robo-advisors, stocks and ETFs. See full bio

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Kylie has written 134 Finder guides across topics including:

• Investment strategies
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