Successful cannabis investing is no easy task.
Throw in the COVID-19 pandemic, and the ups and downs are too much for the average investor to weather.
But you’re no average investor, and you know we are just at the starting line for the cannabis industry.
That’s why today we’re showing you three cannabis investing strategies you can start using right now to maximize the returns on your investments. That also involves playing a little defense and protecting your downside so that your upside is even higher.
Cannabis Investing Strategy No. 3: You Must Diversify Your Cannabis Investments
You may think diversification is obvious.
But how many ways do you know to truly diversify your cannabis investments?
Or you could just buy a handful of penny stocks and hope that they work out.
But that’s not very diversified.
One way to create a diversified portfolio for your cannabis investing strategy is to invest in startups.
For a long time only accredited investors and venture capital firms could invest in startups. Most people we’re locked out of these deals.
You had to know a guy who knew a guy.
But unknown to most, that has all recently changed.
Now you can invest in the hottest cannabis startups before they go public with Regulation Crowdfunding (Reg CF) investing. It allows you to obtain true ground-floor access on the next big thing in cannabis.
Of course, there are risks when investing in startups. You can’t just pull your money out of the investment. For a successful return, the company either needs to go public or be acquired.
But with a few well-placed investments in the right cannabis startups, the payoffs could be huge.
With cannabis investing strategies, it’s also a good idea to think about how you can play offense and play defense.
Special-purpose acquisition companies (SPACs) have been around for a while, but in terms of the cannabis industry, it’s a newer concept that is just being utilized. A group of executives gets together, raises money through an IPO, and then the company uses that money to buy a firm.
These are sometimes referred to as “blank check” companies because it is essentially a pile of cash, waiting to make a purchase. With cannabis SPACs, the biggest thing to look at is the management team.
That is going to be the key factor when determining whether a SPAC belongs in your portfolio.
The executives behind the SPAC can find an operation that has quality assets (machines, facilities, brands) but poor management. The executives then use their experiences to turn around the company, which could create a tidy profit for shareholders.
If the SPAC doesn’t make an acquisition in a certain amount of time, the money is returned to shareholders.
Also, cannabis SPACs have generally had less volatile price swings during the coronavirus.
So, through this cannabis investing strategy, you’re able to play offense and defense.
Now, we just briefly mentioned playing defense during this time. It’s important because you can’t control if the broader markets decide to sell-off and all of your cannabis investments are caught in the sell-off.
And defense is an important part of offense.
It will allow you to limit your losses to keep your gains bigger.
Cannabis Investing Strategy No. 2: Protect the Downside
You may have heard of the term stop loss before, but you may not know what it is or the point of using one when you place a trade.
Stop losses work just like you think they would; they stop you from losing too much on your investment. It’s a great tool to utilize if you aren’t able to consistently follow changing prices throughout the day.
Here’s an example.
Let’s say you buy one share of company “A” for $50. You set a stop loss at $45, which would be a 10% loss. If the stock price drops to $44.99, your investment is automatically sold.
If the price kept dropping that day to $40, that would be a 20% loss if you didn’t have a stop loss established for your position.
You can even use stop losses to lock in your gains.
Take Canopy Growth Corp. (NYSE: CGC) over the past six months. Last November, shares were cheap at roughly $15. Those who bought in rode a nice surge up to almost $25 by mid-January.
But then the COVID pandemic struck and the bottom fell out of the markets. Many CGC owners were giving their flash gains right back.
But, if you had placed a stop loss at $20 when the stock started to slide, a sell order would have triggered well before the stock fell to $15, the cost of your original investment.
Most of your profits still would still be intact, all while the others fell into the red.
Now, as a recap, we talked about diversifying your portfolio and how to protect the cannabis stocks you invest in with stop losses. We also showed you how to lock in profits with stop losses.
For cannabis investing strategies, next on the list is a very important concept that every investor – from the beginner to the expert – needs to understand when buying cannabis stocks…
Cannabis Investing Strategy No. 1: Own the Best Stocks for Phase 2
We are in what we like to call “Phase 2” of the cannabis industry.
This is when the winners will separate themselves from the wannabes.
The days when you could close your eyes, throw a dart, and land on a cannabis company that will payout a quick score are long gone.
The industry is becoming much more established now.
We expect massive amounts of consolidation, and the best companies will acquire even more assets.
During this time, that means you have to be disciplined and focus on the companies with the best ability to scale. You also have to focus on which companies are multi-state operators.
For a company that wants to stand the test of time, it is starting to build a presence even in medical-only states to get ahead of full cannabis legalization. Those companies are creating brand awareness now to capitalize on what they know is ahead.
The Bottom Line
To recap, to be a successful cannabis investor it starts with using these three strategies:
- Diversify your portfolio.
- Utilize stop losses to protect your downside.
- Focus on the companies with the biggest opportunities out there as the industry matures.
We’ll talk again soon,
4 responses to “3 Cannabis Investing Strategies to Utilize During the Coronavirus”
April 13 2020