Cannabis is one of the recent products that have been legalized by the Canadian Govt. for recreational use, making it the most lucrative investment option available in the market. While some investors believe that the industry has tremendous potential to grow and generate high returns, others may not necessarily bid for the same outcome.
Cannabis as a business option
The rapid expansion in the cannabis investment has incited many companies to enter into diversified lines of business such as developing products and researching in the field, going much beyond its regular use. Some of the prominent businesses that are successfully operating within the industry include biotechnology, organic farms, agriculture technology among others.
Cannabis as an investment option
Investing as an activity could be a very risky task. Generally, the higher the risk, higher is the flow of income. However, this may not always be true as there is no such guarantee that high returns will always follow high risk. In such circumstances, one should analyze the market conditions properly before choosing his final portfolio. When you make cannabis investment, you are exposing yourself to various associated risks that might hinder your potential return. Some of such risks are:
- No proper government regulation– The government is still in the process of developing new laws to regulate cannabis. Before the regulatory framework is fully established, it may not be a good idea to speculate a product’s potential success.
- No guaranteed return– Despite the rapid growth of companies in the cannabis sector, there are still uncertainties whether the business will entail long-term profit or not? Whether the business can comply with regulatory standards or not? And so on.
- Limited access to financial market– As cannabis is still a regulated substance in the eyes of the US federal government the Securities Exchange Commission has framed tight rules for the companies before they can be traded on the stock market. Apparently, the investor might have to hold their horses as the picture unfolds itself!
- Legal considerations– The cannabis companies have to comply with the strict rules and regulations. These rules can vary according to the country but they are essential for the cannabis business. If a business fails to comply with these rules, it could invite legal action, in the process of which we may lose some or all of our invested money.
- Widespread speculation– Investors are awaiting a pool of opportunities with the legalization of cannabis. This has led to widespread speculation everywhere in the market which can flare up the share prices and destabilize the entire stock market.
So should we drop the idea of cannabis investing for some time? Well, not really! The cannabis industry is worth giving a shot, but you need to consider taking the following steps of caution:
- Read the disclosure documents properly as they contain all the details from the nature of the business to potential risks.
- Read the company’s financial reports, management’s discussion analysis, news releases, etc., before deciding to invest in that company or not.
- Take the help of a financial adviser, if needed, who can guide you through the entire process of investment.