IS IT REALLY RISKY TO INVEST IN MARIJUANA STOCK?
Investing into the cannabis industry (otherwise known as marijuana) might not really be a bad idea. Though the question being asked is if it is dangerous to invest into the marijuana stock? The answer to such question actually depends on the type of Investor.
Conservative investors won’t find much interest in investing in marijuana stock because of the risks involved, the risks in marijuana stock is usually high but aggressive investors might find it comfortable buying marijuana stocks.
Notwithstanding, it is better to know the risks involved in whatever you want to invest into no matter the type of investor you are, either the conservative or aggressive. Here are the basic information you need to know before investing into the marijuana stock.
WHAT IS MARIJUANA ITSELF?
Marijuana otherwise known as the cannabis sativa plant contains over 100 chemical ingredients known as the cannabinoids. A wide variety of products can be made from the cannabis plant such as the cannabis flowers,edibles etc. Marijuana products are also used for medical and recreational purposes.
Now we know a little about the marijuana stock we move into our main aim here, which is if it is truly risky/dangerous to get involved in the marijuana stocks.
RISK INVOLVED IN MARIJUANA and Hemp STOCKS.
Of course there are risks involved in both Marijuana stocks and Hemp Stocks which is advisable for any investor willing to put his/her money into the cannabis business be it the conservative or aggressive investors. Following are the risks involved
DILUTION RISK: Dilution is the increase in the total number of outstanding shares of a publically traded company which decreases the value of individual shares. There are always Dilution risk and there is usually some form of dilution in almost all stocks but it is considered problematic for marijuana stocks. This is because of the legal barrier that prevented accesses to borrow from bank especially when it comes to the marijuana stock.
Some Companies had to use a different approach referred to as Stock Warrants, It is where an investment bank or a large business, partners and agrees to buy a large chunk of the securities that a company issues at a predetermined price. While this approach allowed some marijuana companies to raise much-needed cash, it can also increase their numbers of outstanding shares which will dilute the value of existing shares.
Although it is possible that the dilution risks for most of the marijuana businesses could diminish as they become consistently profitable. Until that happens though, dilution remains a serious threat/risks for investors to take into consideration when planning on going into the cannabis/marijuana stock business.
Other risks include the valuation risks which is considered as the greatest risk an investor will have to take due to the rapid increase of share prices that reflect more than the growth of the stock. It is important for investors to know that marijuana stocks are not really profitable which brings challenges to the stock valuation.
These are the major risks to be considered by investors other risks include the commoditization risks and the prosecution risks(especially in the united States of America where it is stated that anyone who posses marijuana products would be liable for prosecution which was stated by an attorney general leaving the cannabis industry located in the united states hanging in dark clouds).