Pick Better Marijuana Stocks in 4 Steps

Stick to these four guidelines and you can separate the best marijuana stocks from the ones that are just blowing smoke.

picking up marijuana bud with tongs

It looks like legalization is here to stay, and you can love it or hate it, while also taking advantage of the investment climate that offers some interesting possibilities.

With more than 300 marijuana stocks to choose from—and so many that have rapidly risen on the industry hype of the last few years—how does an investor decide which ones to choose?

Like any investment, analyzing the fundamentals is the key. Here are a few considerations:

1. Look for long-term investments. Sure, there are plenty of nano- and micro-cap cannabis companies that could be 10-baggers, but many will just disappear, leaving the investor empty-handed. And certainly, those kinds of companies can be a lot of fun to invest in, but make sure they are relegated to the speculative portion of your portfolio. Then, concentrate on companies that you think will be the long-term winners for the rest of your holdings. Here are a few large- and small-cap companies now in the pot business.

2. Consider already-established companies where marijuana is—so far—a sideline, and not the entire focus. These businesses aren’t relying on just cannabis to make their fortunes. Their stocks tend to be larger cap, with less volatility, and they have long track records. We’ve already seen boom and bust in the cannabis market, and most of the stocks were the smaller, marijuana-focused companies.

3. Consider an ETF of marijuana stocks. This is a great way to add a few cannabis stocks to your portfolio while diversifying your risk. Ones that come to mind are ETFMG Alternative Harvest (MJ), Teucrium Emerging Medical Agriculture Index Fund (MEDA), and Horizons Marijuana Life Sciences Index ETF (HMLSF) (HMMJ in Canada).

4. Look outside the U.S.—to countries that haven’t had a big run-up in marijuana stocks. Canada and several European countries have legalized marijuana to some extent, for recreational and medical purposes. South America has also opened up its acceptance of weed.

This is just the beginning of a new global investing cycle for marijuana stocks—the right time at the right place to get a ‘taste.’

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