With more than 15,000 social media shares, one of our most popular articles has been “How to buy Marijuana Stocks for Dummies“. The entire reason for writing that article was because every single day, we were receiving inquiries from people on “how can I buy marijuana stocks”. We expect that same sort of response when any new investment theme becomes hyped, which is why we recently wrote about how “investing in artificial intelligence stocks is BS“. Now, the most frequent question we’re getting is “what is the best marijuana stock to buy?”. We’ve talked before about 5 medical marijuana stocks that are legitimate plays on the cannabis theme. Since that article last December, our diversified portfolio of medical marijuana stocks is up +30%:
If you sign up for a Motif Investing account, you can create your own Motif, or you can even buy the one we created above with no minimum deposit required. However, that still doesn’t answer the question of “which marijuana stock to buy” because everyone wants to find the next Microsoft and put all their chips in one basket while ignoring the proven benefits of diversification. We thought it might make sense to walk you through how we would choose “which is the best marijuana stock to buy”. But first, you’re going to suffer through some financial terminology that is boring AF.
One of our favorite questions to ask during finance interviews is “how do you define risk?”. The academic answer is that “risk” is the “volatility of returns”. Notice how we don’t consider risk to be the likelihood of losing money, but rather the extent to which the stocks move up or down. Stocks that move up and down a lot are “volatile” and considered more risky. Volatility is therefore a “risk factor”. What are other risk factors? How about political risk? If you buy stock in some African mining firm, don’t be surprised if a tin pot dictator takes them away from you and tells you to go fcuk yourself. You will have no legal recourse because he controls the legal system as well. Let’s extend this same analogy to the concept of marijuana stocks.
Do you really want to be buying marijuana stocks in the United States when the Attorney General has made it clear that he’s not so fond of a drug that is illegal and a federal crime to possess, sell, grow, or (gasp) fund in any way? Many people brought this up and they have reason to be concerned. While we believe that 99% of all over-the-counter (OTC) “marijuana stocks” are scams anyway, you still don’t want to be holding the bag when the music stops. “Country risk” means that the United States is out of the question (save for those medical marijuana stocks we mentioned before).
Usually, when people think about investing in marijuana stocks, it’s not because they think that this is a miracle plant that can cure every ailment known to man. It’s usually because they see a trend towards increased legalization of marijuana which means that it is turning into a proper industry with tremendous growth opportunities. While this trend has been positive in the U.S. so far, it’s now questionable with the new Attorney General. If we look to our neighbors in the north however, one dashing young man is getting us all worked up for a number of reasons:
One of the reasons to get worked up about Mr. Justin Trudeau, is that he assures us that marijuana will be legalized in Canada by July 1st 2018. This gives us a great deal of confidence that the political risk in Canada is minimal.
Now one last concern we heard raised was whether or not United States citizens can be held liable for investing in Canadian marijuana stocks. While we’re the last people you should be taking legal advice from, our thoughts on the matter are that your brokerage firm will be held liable before you are. In other words, the “clampdown” would be that no ADRs (look it up) can exist which allow you to trade Canadian marijuana stocks. These would cease trading. Then, U.S. brokerage firms would be instructed to not sell any marijuana stocks to U.S. brokerage accounts after liquidating any existing positions. That is our speculation as to how this could pan out should the government move towards more restrictions.
We’re nearing the end of the article and you’re probably worried that now we try and get you to buy our report on “the best marijuana stock to buy”. Regular readers will know that’s not how we roll. If you’re genuinely interested in buying the best marijuana stock, you can’t go wrong by buying the market leader. You can define the market leader in any number of ways but we define it as the company that is selling the most marijuana. Here’s a look at who that is:
(Note that in the above chart, “PF Canopy” stands for “pro-forma Canopy” which simply shows the revenues from both Canopy and Metrum combined. This is because Canopy acquired Mettrum). The market leader in Canada at the moment by far is Canopy Growth Corporation (TSE:WEED). This $1.3 billion marijuana stock is profitable, has over $90 million in cash on hand, is selling a ton of marijuana, and is growing through acquisitions.
As 420 rolls around, we were thinking about celebrating by buying some weed… stocks. Well actually, like the rest of you, we wanted to throw diversification out the window and just find the “best marijuana stock to buy”, then use dollar cost averaging (DCA) to open a position. DCA means that instead of trying to time the market and buy our entire position in one go, we buy small chunks of it every month over a period of time. In our next article, we’ll show you how we use Interactive Brokers to buy a position in Canopy Growth Corporation (TSE:WEED) on the actual Canadian stock market for a very small commission. This means that we first go buy Canadian dollars (very small commission), then we use them to buy shares of WEED (again, a very small commission).
The tool we use to buy Canadian marijuana stocks on the Canadian market is called Interactive Brokers. It is by far the best broker anywhere with the cheapest commissions (about $1 a trade for U.S. stocks). If you’re 25 or younger, you can open an account with $3,000. If you’re opening an IRA (nothing says risk tolerant like buying weed stocks with your retirement money), then you’ll need $5,000 to open the account. In all other cases, the required minimum to open an account is $10,000. You can open an account by clicking the below banner and you’ll be ready for our article on 4/20 where we celebrate 420 by opening a position in the best marijuana stock out there. Stay tuned.