How to Invest in Marijuana Penny Stocks

Do you ever wish that you could have gotten in early on the action in a large, rapidly expanding, profitable industry?

Imagine being one of the early investors in Apple or Netflix. Sounds pretty good, right? ✅

But the problem is that most industries are almost set in stone – the leaders are clearly defined, and although there are profits to be made, it’s unlikely you’ll see the wild success stories that defined the widespread adoption of the internet, for example.

But new industries don’t suffer from that problem – and marijuana is often viewed as one of the most promising new industries of the decade.

We all know that there is a market and a demand for marijuana that is almost ubiquitous. However, legalization will not only improve access to marijuana products – it will allow people to invest money in businesses that they believe in, further speeding up the already impressive growth of the industry, as well as allowing it to expand into new products.

It’s a perfect time to get in on the action – but how can you invest in an industry that has yet to fully mature? One of the answers to that question is penny stocks – stocks that belong to new business, and trade for less than $5 apiece.

Penny stocks are risky – but some of those companies will end up being industry leaders or innovative trailblazers. Let’s look at some of the main benefits and drawbacks of marijuana penny stocks – as well as how to find good opportunities and invest in them.

What Makes Marijuana Penny Stocks Unique

Before we move on to the specific attributes of marijuana penny stocks, let’s take a step back and take some time out for a short refresher course on penny stocks.

If you’re not familiar with the term, penny stocks are stocks that belong to new businesses, and generally trade for less than $5 per share, although that definition isn’t set in stone.

Many penny stocks aren’t listed on the big exchanges – instead, they’re traded over the counter (OTC). OTC stocks and pink sheet companies have less stringent listing requirements and allow smaller companies to raise funds more easily.

We should also mention that there are plenty of scams when it comes to penny stocks – however, an ounce of common sense and using a trustworthy broker should be enough to make that a non-issue.

Penny stocks, as you’ve probably already assumed, are quite cheap to get into. On top of that, even a small change in price can net you huge returns – but the inverse is also true, as you can very easily lose your investments with penny stocks.

Now that we’ve briefly covered penny stocks in general, let’s move on to marijuana penny stocks in particular.

Marijuana Penny Stock Pros ✅

Return Potential 💰

The return potential of penny stocks is very high. Due to the sheer number of shares that you can easily purchase with a relatively modest sum of money, even a small increase in stock price can end up netting you enormous returns. The downside is that this is a double-edged sword – even a relatively small slip in stock price can end up costing you a lot as well.

Low Barrier to Entry 🎟

Penny stocks are cheap – meaning that they are quite accessible to investors, no matter how much money they have to invest. This low barrier to entry means that you can begin investing in penny stocks

Potential For Long-Term Profits 📈

Although penny stocks are a more natural fit for trading, they do offer the chance of investing early on into a potential industry leader. Successfully identifying companies that have that potential is tough, but it is a possibility nonetheless.

Rapid Changes in Price ✔️

Note that this is only a potential pro – but penny stocks are liable to see rapid changes in price. This shorter timeframe is a great way to grow your portfolio, provided that you sell your investments in time, as a lot of penny stocks take weeks or months to reach their full potential, compared with years when it comes to more established companies.

Marijuana Penny Stock Cons ⚠️

Volatility 📉

Penny stocks are incredibly volatile – and while these sudden, rapid changes in price can be used to secure profits, plenty of investors just aren’t cut out for that sort of approach. 

Penny stocks are the farthest thing from a stable investment – so beginners should steer clear of them until they’ve gained some experience.

Foreign Listings 🌍

The legal status of marijuana in the U.S. is complicated and far from equal across the board. Most marijuana companies in the U.S. have trouble with accessing financial services and banking, which in turn makes investing in them either much more difficult or impossible.

Although there are plenty of U.S.-based marijuana stocks to invest in, a large number of marijuana businesses in North America are based in Canada. In order to make the greatest use of the industry’s current momentum, you’re going to need access to those stocks. 

While this isn’t a con in the strictest sense, just make sure that the broker that you choose to open an account with has access to other markets.

Potentially Low Trading Volume 🛬

One of the potential problems with trading penny stocks is that unlike with large, well-established businesses, penny stocks can and do regularly see low trading volume. 

This can potentially make it quite difficult to sell your stocks when the time comes – although if you invest in a business that has a solid foundation, it stands to reason that it will see increased interest from other investors.

How to Pick a Good Marijuana Penny Stock 🎯

We’ve established that marijuana penny stocks are risky, but there’s no denying that this is an incredibly innovative, dynamic area full of potential – and full of potential profits. So, how do you separate the weed from the chaff?

First of all, don’t ever underestimate the volatility of penny stocks. The bad rap that they sometimes get isn’t entirely unwarranted – penny stocks are always risky. However, with some due diligence, you can mitigate a lot of those risks.

So, what should you look for? Never forget the fundamentals – fundamental analysis should be your first step. You should also pay attention to the market cap of the business – in general, companies with larger market caps are less prone to wild swings in stock price.

Look at any potential investment through the lens of metrics – earnings per share, price to sales, operating cash flow, and liquidity ratios are the most important ones, seeing as how small companies have less room to maneuver financially. Keep in mind, however, that as we are dealing with new companies, negative earnings per share don’t automatically disqualify a business.

Looking at a penny stock from this angle will allow you to determine if the stock price is overvalued and if the company in question has solid financials that can support growth in the future. If a company doesn’t have solid financials, it will most likely resort to issuing more shares – this process, known as dilution, causes drops in stock price, making an already volatile and risky situation even worse.

Next, consider the management and product of the business in question. How is management going about raising funds, and are those funds being used to expand the business? Does management have plans regarding product diversification and expanding into new markets?

What is the company’s product, is it innovative, and does it have a chance of cementing the business in question as an industry leader?

Marijuana Penny Stock Examples 🗂

We’ve already covered a lot of ground here, but let’s turn from the abstract to the practical for a minute. A couple of real-life examples will help you better understand some of the nuances of investing in marijuana penny stocks, as well as help explain just what it is that makes these companies a solid choice.

But before we go on, just remember – we’re going to show you companies that have seen success – for each business on our list, there are dozens just like it that didn’t make it.

MariMed 📚

MariMed Inc. (OTCMKTS: MRMD) is one of the largest multi-state cannabis companies in the United States. It has a market cap of $362.582 million, currently owns 300,000 square feet of cultivation space, and operates dispensaries in Delaware, Maryland, and Massachusetts, and the rapidly expanding Illinois market.

MariMed has a varied line of products which include both THC and CBD products, as well as marijuana flower. The company has a well-developed and robust seed-to-sale infrastructure in place, and the efforts that they went to in order to expand the business have started paying off – not only is the stock price showing consistent growth, but the company has also seen a positive net income in 2020.

A year ago, MariMed was trading at $0.20 – now, it is trading for $1.12, and we’re excited to see how the business will perform in the future.

General Cannabis Corp 📚

General Cannabis Corp (OTCMKTS: CANN) is a business that offers management and consulting services in the cannabis industry and has also recently made moves toward opening and consolidating a retail division.

General Cannabis Corp has a $45.367 million market cap and is trading at $0.73 per share as of May 2021. A year before that, the stock’s price was $0.54 – in the meantime, it saw a peak of $1.86, but the stock’s price has recently dropped.

So, is that bad news? Not necessarily – the company’s long-term prospects are still good, and the recent acquisition of cannabis retailer operator Trees will serve as a good foundation for future growth.

Cannabix Technologies 📚

Cannabix Technologies (CNSX: BLO) / (OTCMKTS: BLOZF) is a technology company that is focusing on providing law enforcement agencies and workplaces with the tools needed to detect THC.

Cannabix Technologies has a market cap of $108.31 million. As of late May 2021, the stock is trading at $1.17, up from $0.46 a year earlier – however, this company is a little tricky. 

The recent announcement of a cannabis breathalyzer patent has seen an increase in investor confidence, but it’s hard to tell what the long-term prospects of this business are because it still isn’t generating revenue.

Fire & Flower Holdings 📚

Fire & Flower Holdings (TSE: FAF) is a Canadian cannabis retailer currently trading at $1.07 per share, up from $0.71 last year.

The company has a market cap of $353.308 million and is making strategic moves to secure a large part of the recreational cannabis market in Canada. Fire & Flower currently operates over 80 retail stores in Alberta, Manitoba, Ontario, British Columbia, Saskatchewan, and the Yukon, and has plans to operate over 100 retail stores by the end of 2021.

Fire & Flower boasts a management team that is experienced both when it comes to the retail sector and the cannabis industry. With such solid long-term prospects, we’d seriously consider buying the company’s stock and holding it for a long time.

Breakout Marijuana Penny Stocks ⭐️

Now, let’s take a look at two breakout marijuana penny stocks – stocks that have successfully broken out of the penny stock category and are now trading at over $5 per share.

Hexo Corp 👇

Hexo Corp (TSE: HEXO) is a Canadian business that services both the recreational adult-use and medicinal marijuana markets through its HEXO and Hydropothecary brands. The company has over 300,000 square feet of production capacity, as well as over 2 million square feet of facilities in Ontario and Quebec.

The company’s market cap is $777.944 million, and its stock is trading at $7.62 as of late May 2021, up from $3.76 a year earlier. Although the stock has seen higher prices in the past, recent news such as the acquisition of the company’s first production facility in the U.S. suggests that long-term prospects are still good.

High Tide Inc 👇

Founded way back in 2009, High Tide Inc (CVE: HITI) is a business that focuses on cannabis manufacture and retail. It currently has a market cap of $445.446 million, and is one of Canada’s largest recreational cannabis retail networks, operating over 85 retail stores across the country.

High Tide has made moves to expand into the U.S. CBD market, and also maintains a large presence in the smoking accessories subsection of the industry, with licensed products from celebrities such as Snoop Dogg and Cheech & Chong.

The company’s stock currently trades at $9.18, up from $2.85 – and with an aggressive strategy of expansion through acquisitions, we’re certain that they will be an important player in the industry in the years to come.

How to Buy Marijuana Penny Stocks Online 🤝

In order to purchase marijuana penny stocks, you’re going to have to sign up with a brokerage. Luckily for you, there are plenty of great brokerages that focus on penny stocks. 

Even if you already have an account with a brokerage, opening another with a broker that focuses on penny stock trading is a good idea – the level of access to the market, low commissions, and research capabilities of these brokers are miles ahead of what you’d find with a more general-purpose broker.

When looking for a brokerage, the range of investment offerings is the most important item on your list. Although they are risky, you should preferably try to find a brokerage that also offers you access to OTC markets. Although large exchanges such as the NYSE and NASDAQ do give you access to marijuana penny stocks, you want to have as much choice as possible.

Another important area that you should focus on is trade execution and research tools. The fast-paced nature of penny stocks means that fast execution is a must, and research tools are hugely important because they allow you to dampen the single biggest drawback of penny stock trading – unpredictability.

Even though OTC penny stocks can be incredibly volatile, provided that you know how to properly research stocks, they can also be quite profitable. Even so, we recommend caution – be thorough in your research, and always use profit targets when trading OTC penny stocks.

Once you’ve opened and funded an account with a brokerage and done your research, actually buying stocks is easy – it’s just a matter of going through the motions on a particular platform.

Marijuana Penny Stock as an Asset Class 📖

Unsurprisingly, marijuana penny stocks are stocks. Everything that holds true for stocks, asset allocation, and diversification also applies here – however, penny stocks carry additional risk, so there are some additional considerations too.

In general, we wouldn’t recommend investing more than 10% of your equity portfolio in penny stocks. Put another way, don’t invest any money that you’re not absolutely ready to lose – if you can’t handle that requirement, you’re much better off investing in something more traditional like blue-chip companies.

Another thing to consider is how you will approach marijuana penny stocks. Although penny stocks naturally lend themselves to trading because of the prospect of short-term price swings, this approach is often unsuitable to beginners, and should only be considered if you know how to trade penny stocks.

On the other hand, long-term investing is tricky with marijuana penny stocks – with much less stringent listing requirements, it’s quite a bit tougher to ascertain how likely a business is to thrive in the future. 

However, with enough research and experience, it is possible to find a business whose product you believe in – and if that happens, long-term investing is a possibility. Consider if you’d like to invest in a pure marijuana business, a medical marijuana company, or a business that focuses on CBD. 

However, remember that penny stocks aren’t immune to crashes Just to be on the safe side, we’ll repeat it once again – do not devote a significant amount of your portfolio to penny stocks, and make sure that your investments are spread across a decent variety of asset classes such as stocks, ETFs, mutual funds, and bonds. Proper diversification is always a must.

How Do Marijuana Penny Stocks Perform During a Recession? 👀

The widespread legalization of cannabis and the resulting rapid expansion of the industry has coincided with a global pandemic that has had an enormous effect on the entire economy. No industry or sector was left unscathed, but for most of them, we more or less knew how things would play out.

The COVID-19 pandemic was the first recession to affect marijuana penny stocks. So, now that the dust has (at least partially) settled, how did they fare when push came to shove?

Looking across the board, marijuana businesses in North America have seen only a couple of months of stagnant earnings, followed by steady increases – and the same goes for hemp and CBD. However, we’re talking about investing in stocks here – so stock prices are the bottom line that we have to look at.

When it comes to marijuana penny stocks, prices are down overall. Although signs of recovery are present, the fact remains that this is a young industry that is still budding into maturity – and because of that, a large degree of volatility is present, on top of the usual volatility associated with penny stocks.

On the whole, marijuana penny stocks have shown more resilience than expected – but they’re far from a stable investment during a recession. However, the promising signs are there – and as the industry matures, expands, and crystalizes, marijuana stocks might very well end up being stable, recession-proof investments in the future.

The important thing to note here, however, is that if marijuana stocks do end up becoming safe investments for times of recession, it is unlikely that they will still be penny stocks.

Hemp Stock vs. Marijuana Stock ⚖️

While we’re in the area and already talking about marijuana stocks, we’d be remiss not to mention hemp stocks as well.

Hemp stocks and marijuana stocks are often lumped together – however, there are a couple of key differences here that should always be taken into consideration. 

Number one, the legal status of hemp and marijuana is not always the same – and while legalization would certainly be a boon for hemp growers as well, some hemp-based businesses are already pretty well established.

Second of all, hemp lends itself to a variety of uses. While CBD products are by far the most dynamic and interesting arena when it comes to hemp, marijuana’s often overlooked cousin can also be used in the production of paper, clothing, biofuel, bioplastics, textiles, and many food products.

The versatility of hemp means that there are no hard and fast rules when it comes to hemp stocks. A company that has a product line focused solely on CBD will perform quite differently than a business that is looking to make more traditional hemp-based products, for example.

In general, companies that focus on hemp-based products are unlikely to see huge shifts in price that penny stock traders are looking for. When it comes to hemp stocks, the most money to be made is found in companies that focus on CBD. 

There are a couple of reasons at play here – one, CBD is itself a versatile product, and can be sold in many forms – and two, within the wider sphere of marijuana/hemp products, it still has a lot of room to expand as customers become more aware and familiar of CBD and its uses.

Conclusion 🏁

If you’ve made it to the end of this guide – congratulations! Sit back, relax, and enjoy yourself in whatever (legal) way you prefer. The cannabis industry is bound to reach new highs (see what we did there?) in the years to come, and we’re excited to see what new trails will be blazed (no more, we promise).

Marijuana penny stocks will certainly play a big role in the future of the cannabis industry. There’s a lot of risks involved, but provided that you commit yourself fully to research and put the necessary time in, these stocks can also play an important role in your investment journey.

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