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Cannabis Investment Tips

Apr 24 2019, by Jessica McElfresh in Legal Blog, Marijuana Business

Both inexperienced and savvy investors are becoming more comfortable with the idea of investing in the cannabis industry in the U.S. and Canada. In fact, the potential significant return on investment (ROI) has the opportunity dubbed “the green rush.” Investors may be able to seek a strong ROI in the cannabis industry; however, you should consider these cannabis investment tips first before diving in:

Do not assume the cannabis industry will act like any other.

The cannabis industry is growing rapidly and is rife with opportunity. Both experienced and inexperienced investors may see this and treat it like any other emerging market. This could be problematic. Cannabis is a complex arena, given that laws and regulations differ from state to state, and from the state to federal level. Those interested in investing in the cannabis industry will benefit from partnering with organizations that have been involved with the industry for years already.

Make long-term plans.

The cannabis industry is not fully up and running in either the U.S. or Canada. It will take time to see which companies do well and which flounder. For investors, this means you will need to be patient.

Diversify your cannabis investments.

Because it remains to be seen which cannabis companies perform well and which do not, investors need to prioritize diversity among their cannabis investments. Investors can choose to invest in different cannabis stocks or utilize an exchange-traded fund (ETC), which gives investors access to many cannabis stocks with one security.

Consider investing in companies indirectly involved in the cannabis industry.

Many potential cannabis investors may focus on cultivation and manufacturing companies. However, there are many other players within the industry. In an effort to diversify your cannabis investments, look into businesses that provide ancillary products and services to the cannabis industry, such as packaging, hydroponics, and lighting systems.

Perform due diligence on each potential investment.

Before investing in a cannabis business, you should research the company’s management team and their track records within the industry or in similar industries. Are the executives already experienced in the cannabis industry or are they new? Do they have a previous track record of building successful businesses, or are they new to business leadership? You should also research each company’s current sales or contracts and their expansion plans. It is important to consider whether the business appears it can scale and either become or remain profitable.

Consider investing in a private equity fund.

If you are not comfortable with choosing which cannabis securities to purchase, you can invest in a private equity fund. This is a pooled investment vehicle managed by a private equity firm. Typically, they are focused on long-term investments. Look for a firm that has been involved in the cannabis industry for several years, and how they have performed. Also, perform due diligence on the firm’s partners regarding whether they have previous experience operating companies or managing portfolios. Firms with leaders who only have been one or the other may lack the expertise you desire for long-term investing.

Be aware of scams.

Because the cannabis industry in the U.S. and Canada is so young, it has its fair share of scams. You can check with the U.S. Securities and Exchange Commission’s site, Investor.gov, and the Financial Industry Regulatory Authority (FINRA) website.

Do You Need Help Regarding the Cannabis Industry?

If you are looking for help regarding California’s cannabis industry, contact attorney Jessica McElfresh right away. She has years of experience as a marijuana business lawyer, and a strong track record of obtaining successful outcomes for her clients. To schedule an initial case consultation, contact McElfresh Law at (858) 756-7107.