With recreational marijuana now legal in 24 states and Washington, DC, the cannabis market has rapidly grown. Despite this progress, investing in marijuana stocks requires caution: the industry faces unique challenges—including federal restrictions.
Cannabis stocks encompass a wide range of companies. This includes retail operations, biotech firms, and distribution specialists. While the potential rewards may tempt investors, understanding the risks is crucial.
It’s well worth taking a closer look at the best-performing cannabis stocks, the challenges of this nascent industry, and how to evaluate potential investments.
Top-Performing Cannabis Stocks
Below is a list of the 13 best-performing stocks on New Cannabis Ventures’ Global Cannabis Stock Index. These companies trade on the New York Stock Exchange or NASDAQ and represent a range of performances:
- Turning Point Brands Inc (TPB): 139.16%
- WM Technology Inc (MAPS): 79.10%
- OrganiGram Holdings Inc (OGI): 26.52%
- SNDL Inc (SNDL): 21.47%
- Scotts Miracle-Gro Company (SMG): 9.39%
- Village Farms International Inc (VFF): 8.30%
- Advanced Flower Capital Inc (AFCG): 7.00%
- Chicago Atlantic Real Estate Finance Inc (REFI): 0.62%
- Aurora Cannabis Inc (ACB): -1.49%
- Cronos Group Inc (CRON): -2.80%
- Jazz Pharmaceuticals plc (JAZZ): -3.16%
- Emerald Holding Inc (EEX): -16.38%
- Hydrofarm Holdings Group Inc (HYFM): -26.37%
(Data as of Jan. 3, 2025, sourced from Finviz. For informational purposes only.)
Understanding Risks in Marijuana Stocks
While marijuana stocks offer exciting opportunities, they also present significant risks. The cannabis industry remains young—and its primary product is classified as a Schedule 1 drug under federal law. These factors make investing in cannabis inherently speculative.
Key Risks to Consider
- New Industry Challenges: Many cannabis companies are small and volatile, making
- them more prone to business failure.
- Potential Scams: Investors must stay aware of unlicensed sellers, fake press releases, and manipulation schemes.
- International Exposure: Foreign cannabis stocks may offer less transparency and fewer legal protections.
- Financial Services Barriers: Federal illegality often discourages banks and advisors from supporting the cannabis industry.
How to Evaluate Marijuana Stocks
Investors interested in cannabis stocks should conduct thorough research. While all marijuana stocks carry risks, some key indicators can help identify potential opportunities.
Factors to Consider
- Market Capitalization: Larger market caps often signal more established and stable companies.
- Exchange Listings: Stocks on major exchanges meet stricter regulatory standards than OTC stocks.
- Analyst Coverage: Reputable firms analyzing a stock can lend credibility and offer valuable insights.
- Pure-Play vs. Diversified Companies: Diversified companies provide stability, while pure-play cannabis firms offer higher growth potential.
Strategies for Adding Cannabis Stocks to Your Portfolio
Cannabis stocks should only represent a small portion of a diversified portfolio. Experts recommend limiting individual stocks—including marijuana investments—to no more than 10% of total holdings. For broader exposure, prioritize low-cost index funds and ETFs.
Tips for Building a Cannabis Portfolio
- Dedicate time to researching individual stocks. Understand their business models, revenue streams, and potential growth areas.
- Focus on long-term investments. Only invest money you can afford to leave untouched for at least 5 years.
- Consider ETFs for diversification. Marijuana ETFs provide exposure to multiple companies, reducing the risks associated with individual stocks.
Beyond Stocks: Exploring Marijuana ETFs
For investors seeking cannabis exposure without stock-specific research, marijuana ETFs are a reasonable alternative. These funds spread the risk by holding shares in multiple cannabis companies. Remember, though, ETFs are not immune to the industry’s volatility. They are susceptible to sharp price changes.
Becoming a Marijuana Stock Investor
Investing in marijuana stocks requires a brokerage account. Be sure to choose one with diverse investment options—and minimal fees.
When you’re ready to invest:
- Locate the stock using its ticker symbol.
- Review the bid-ask spread to understand pricing.
- Place an order and confirm the transaction.
Balancing Potential and Risk in Cannabis Stocks
Marijuana stocks present exciting opportunities. Still, there are three reasons for investors to proceed with caution: the industry’s young age, its legal uncertainties, and the potential for scams.
Investors who conduct thorough research and diversify their holdings can navigate the cannabis market challenges—while capitalizing on its growth potential.
