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Cannabis has been an illegal substance for the last 100 or so years in most of the world. Public opinion against the drug kept it that way for so long, but tides are changing.

Canada legalized cannabis in 2018, and many states in the U.S. have led the charge. More than 30 states have legalized cannabis in at least a medical capacity. This emerging industry presents several investment opportunities for seasoned investors.

Emerging Industry Recap

Hemp was recently legalized in the United States. Marijuana and hemp are both derived from the cannabis plant. Hemp contains very low levels of tetrahydrocannabinol (THC), which is the compound that gets people high.

Other cannabinoids of interest in the plants may have additional medicinal properties. Cannabidiol (CBD) is of particular interest because it is not a psychoactive compound like THC. CBD has shown to have some therapeutic effects for relieving symptoms of anxiety and insomnia in recent studies. These compounds found in the cannabis plant drive an emerging network of manufacturers, growers, producers, and retailers.

Chains of Production

Investing in cannabis stocks can be done in a variety of ways.

* Marijuana growing companies are those that cultivate and grow the plants at farms or indoor greenhouses.

* Biotech firms are those developing new prescription drugs from cannabis ingredients.

* Ancillary producers are related industries that provide products and services to the cannabis industry. Packaging, lighting, hydroponics, distribution, and more are included in this category.

Cannabis ETFs

Investing in cannabis stocks doesn’t have to mean choosing specific companies. There are cannabis exchange-traded funds (ETFs) that provide a way to invest in multiple companies.

Most ETFs are focused on investing in Canadian companies, where cannabis is now legal. U.S. investors can trade these cannabis ETFs, but only on the over-the-counter market.

Is cannabis investment risky?

Before investing in the cannabis industry, you should be aware of all the risks associated with the industry. Many publicly traded cannabis companies have high market caps because investors are expecting tremendous growth.

If these companies don’t achieve that growth, we could see an industry bubble burst similar to the dotcom bubble. Many cannabis companies are not profitable yet, which could result in share dilution. This beginner’s guide to cannabis investing can better explain some of the risks.